Annual Financial Report to 31 December 2008

FOR IMMEDIATE RELEASE 30 April 2009 LONDON & ASSOCIATED PROPERTIES PLC: See www.lap.co.uk for the Annual Report to 31 December 2008 FINAL RESULTS FOR YEAR TO 31 DECEMBER 2008 London & Associated Properties is a fully listed UK shopping centre and Central London retail property specialist. The company owns and manages Â£244m of retail investments HIGHLIGHTS â€¢ Wholly-owned retail investment portfolio performed well in difficult market, valued at Â£218.5m reflecting a decline of 13.2% - less than half the decline across the real estate sector. â€¢ Outperformance attributed in part in part to well-timed development programme â€“ completed ahead of current market conditions â€¢ Â£140m of sales completed between 2006 and 2008 at â€œtop of marketâ€ prices â€¢ Total annualised rent roll rose 27% to Â£17.3m from Â£13.6m â€¢ Minimal impact from retail sector insolvencies with only Â£0.6m a year of the rent roll becoming non-income producing â€¢ â€œManagement adjustedâ€ net assets stood at Â£54.4m against Â£88.0m in 2007. (IFRS: Â£40.3m against Â£89.0m in 2007). â€¢ â€œManagement adjustedâ€ net assets per share stood at 71.2p against 115.5p in 2007. (IFRS: 52.7p against 116.9p in 2007). â€¢ Final recommended payment to shareholders of 1.2p comprising 0.4p in cash and 0.8p in bonus shares â€“ an equivalent nominal amount equal to 1.95p â€“ consistent with the 26 year record of increasing or holding the dividend. â€¢ Â£8.8m invested in developing existing portfolio â€“ generating Â£0.5m in annualised incremental rents â€œI am particularly encouraged that our property valuations exceeded industry benchmarks. I am also content that we have made significant progress in improving and managing our property portfolio, and this is part of the reason that so far we appear to have avoided the worst of the tenant defaults within the retail sector,â€ John Heller, Chief Executive. CHAIRMAN'S STATEMENT In future years 2008 may well be seen by historians as the beginning of one of the harshest economic periods in history. Within this crisis, one of the hardest hit areas has been commercial property, where an imbalance between a high number of sellers, often in distressed situations, and an extremely low level of buyers caused values to collapse. This collapse has been across all sectors and has affected all property investors, including LAP. As at 31st December 2008, our property portfolio was valued at Â£218.5m, a drop of 13.2% on a like-for-like basis. While this is a significant reduction in value, it nevertheless compares favourably with the Investment Property Databank (IPD), the property market benchmark, which showed retail property capital values fell by some 28% during 2008. Our relative outperformance can be attributed to a number of factors: Firstly, it is now becoming increasingly clear that our recent development programme was well-timed as it was completed prior to the current economic difficulties. A number of our centres are now benefiting from significant increases in income as the tenants to whom we pre-let units before development commenced have started paying rent. This increase in income has provided a cushion and helped to limit the fall in the value of our properties. Secondly, between 2006 and 2008, we sold approximately Â£140m of properties at prices which can now be seen to be the top of the market. These disposals were from the more secondary end of our portfolio, the retail property sector that has faced the steepest decline. Additionally we disposed of Chenil House, King's Road, in July 2008 for Â£14.9m. This reflected our desire to move away from developments that were not pre-let as we predicted correctly the onset of the fall in values of residential property. Finally, we have upgraded the quality of our portfolio over the last few years. 56% by value of our holdings is in prime locations within London and the South East, and additionally the quality of our tenants has never been higher. Our top 52 tenants account for approximately 75% of our income, and all are household names. While in these difficult times this does not provide the same level of comfort that it used to, we feel relatively confident that we should experience more limited tenant default. During December and since the year-end, only 11 tenants have gone into some form of insolvency. In total, those units that became non-income producing accounted for Â£0.6m per year out of our total annualised rent roll of Â£17.3m, representing less than 3.5%. This figure is heavily skewed by the loss of Zavvi at Orchard Square, our shopping centre in Sheffield, who were paying Â£368,000 per annum. Zavvi occupied a flagship store and we quickly received three offers, all from national retailers, at levels in excess of the previous rent passing. This unit is now under offer to a leading fashion retailer, and we will complete soon. We currently have units under offer with a rental income approaching Â£0.5m per annum. Once these units in the LAP portfolio are let, total vacant units other than those that are deliberately held empty for redevelopment will account for just Â£0.3m per annum of additional rental income. Naturally, our net assets have been adversely affected by the write-down of our property. On a management adjusted accounting basis, which excludes certain fair value adjustments, our net assets are Â£54.4m compared to Â£88.0m for 2007, and our net assets per share are 71p (2007:115p). These numbers are shown in more detail in the Finance Director's Report. The non cash adjustments required under IFRS relating to interest rate hedges produce results that do not reflect the board's view of the underlying value of the group or the prudent manner in which the business has been managed, notably in minimising the impact of interest rate volatility. Applying this hedging adjustment to the IFRS accounts has resulted in a further Â£14.1m being deducted from our net assets. Last year, the same interest rate swaps were valued at a surplus of Â£1.0m, an adverse swing of some Â£15.1m. Net assets under IFRS as a result stand at Â£40.3m compared to Â£89.0m at the end of 2007, while net assets per share are 52.7p (2007: 116.9p). In support of its view that this adjustment is unrealistic, the Board has noted that if the hedge had been valued on the same basis as at 7 April 2009 this would have resulted in an adjustment of Â£8.4m, a positive swing of Â£5.7m in the space of three months. It is important to note that Â£70.0m, or 43% of our loans, are non-recourse to the Group's balance sheet. Crucially, we remain within our banking covenants. Notwithstanding the valuation reduction, which was industry-wide, we performed well in 2008. Annual revenue rose 27% to Â£16.5m from Â£13.0m. This reflects, in part, the full consolidation of Analytical Properties following our acquisition in September 2007 from Bank of Scotland of the 50% of the equity that we did not previously own. Rental income also rose following the completion of new retail units in Sheffield which now generate Â£0.9m per annum. There were also key lettings elsewhere in the portfolio and we received full contributions from our recent acquisitions in Chesterfield and Solihull. The Chief Executive's Review provides fuller details. On a management adjusted basis (as detailed in the Finance Director's Report), we made a small loss in 2008 of Â£1.0m (2007: Â£0.5m profit). This loss principally reflects the fact that we have held empty a number of units for redevelopment. As stated above, our development programme has been well timed and is now mostly completed, although we are still intending to develop two further properties in Islington and Chelsea. Both properties have been pre-let to excellent covenants. Our developments in 2008 were all funded from existing cash resources. We will also fund the future works at Islington and Chelsea from cash resources. In this constrained market, we will defer certain developments that are still at an early stage. These include a residential-led scheme at Brixton Village, which was reappraised following the fall in residential values and the lack of likely joint venture partners from within the housebuilding industry. Associated costs of Â£0.2m have been written-off through the income statement. Under IFRS total property expenses include Â£0.6m of pre-development costs which have been written off in the year. The Board feels that in the current economic conditions it is imperative that the Group maximises its financial flexibility, including conserving cash wherever appropriate. The Board is therefore recommending an amount equivalent to a final dividend for 2008 of 1.2p per ordinary share. This will be satisfied by paying 0.4p per ordinary share by way of a cash dividend and by issuing new ordinary shares to existing shareholders with a value equal to 0.8p per ordinary share. This results in a total for 2008 of an equivalent nominal amount equal to 1.95p per ordinary share and is consistent with our 26 year record of increasing or holding our dividend. Subject to shareholder approval, the cash dividend will be paid on 3 July 2009 to shareholders on the register at the close of business on 5 June 2009 and the issue of shares will take effect on 3 July 2009 to shareholders registered at the close of business on 5 June 2009. Total assets under management, including those of Bisichi Mining Plc, our associate company, and Dragon Retail Properties, our joint venture with Bisichi, stood at Â£244m at the year end. Bisichi had a very successful year and generated trading profits of Â£6.0m before the write-down of its property portfolio. Net of the write-down, Bisichi's profits were Â£2.1m. Our performance in 2008 has been satisfactory given the rapid deterioration of the property investment market. I am particularly encouraged that our property valuations exceeded industry benchmarks. I am also content that we have made significant progress in improving and managing our property portfolio, and this is part of the reason that so far we appear to have avoided the worst of the tenant defaults within the retail sector. There seems to be a polarisation within the property investment market between prime properties, where there are some early indications of a return of investor appetite, and the remainder of the market which has yet to find investor support. We expect these trends to continue and that the quality of our portfolio should mitigate the effects of this market correction. Michael Heller Chairman 17 April 2009 CHIEF EXECUTIVE'S REPORT 2008 was a very difficult year for the UK property investment market during which capital values declined across the board by 27.1% in aggregate. Retail property values were down by 28.0% caused by reduced consumer spending, a lack of available funds due to the banking crisis and investor fears over tenant default. We can take considerable comfort from the fact that LAP's portfolio fell by just 13.2% over this period. This can be attributed in part to our successful strategy over the last few years of selling mature and more secondary properties into what was an unsustainably strong market. We reinvested the proceeds into high quality, well located property as well as into improvements to our core portfolio. Few disposals are likely in the coming months, although we do not rule out the possibility of certain targeted sales where we are able to take advantage of opportunities and relatively strong investor demand. As a result of the quality of our portfolio and the continued drive to upgrade it through selective development, our valuations have held up relatively well. The decision to focus our portfolio more towards central London and the South East has also been beneficial. We believe this market will retain value better than elsewhere in the UK, particularly in the more prime areas, as international buyers are still looking to invest in one of the world's most important capital cities. This trend has been reinforced by the substantial decline of sterling over the last 18 months. We have also invested some Â£8.8m into developing our existing portfolio, and this has generated annual incremental rental flows of Â£0.5m to date. This also strengthens our cash flow and extends the average lease term of our tenants. Our strategy of investing in quality property means we have suffered limited tenant defaults. In total, tenants accounting for annual rental income of Â£0.8m suffered some form of insolvency from the fourth quarter of 2008 until now. Of this total, tenants vacating their units and leaving us with non income-producing space amounted to Â£0.6m per annum. Zavvi, the largest single one of these tenants, accounted for Â£368,000 per annum. This space is now under offer at a higher rent than had previously been passing, and we have a total of approximately Â£0.5m per annum under offer. Once these lettings complete our voids, not including those units held for redevelopment will stand at 1.7% of our total rent roll of Â£17.3m. Cash collection from our tenants in December 2008 and March 2009 has remained as strong as ever. We collected in excess of 95% of all rent, service charge and other sums due within 14 days of each quarter day. The economic and financial environment declined sharply at the end of 2008. Notwithstanding this, we successfully completed a number of new leases, lease renewals and rent reviews during the year. These amounted to a net Â£0.9m per annum. Windsor Our development at King Edward Court, Windsor, undertaken in 2006, continues to underpin the strong performance of this centre. Further lettings were achieved which generated Â£0.3m per annum. The centre agreed net incremental rents during 2008 of Â£0.1m after taking into account the two voids accounting for Â£0.2m that occurred when Officers Club and Barratts both went into administration and vacated their units. Our agents are currently marketing the vacant units and report encouraging interest in them. We are confident of maintaining a strong tenant mix at this centre, which we believe to be an important factor in its continued long term performance. New tenants to King Edward Court in 2008 include Benefit, an international cosmetics retailer, which has taken a unit opposite the redeveloped shops at Â£50,000 per annum. This letting shows a zone A level of Â£115 per sq. ft. Income from the car park has also increased and now stands at approximately Â£2.0m per annum. This compares favourably with Â£1.2m per annum two years ago and reflects both the increases in price that we have been able to implement and increased usage following the upgrading of the centre. Sheffield Orchard Square has been dramatically transformed over the last few years, and 2008 was probably its most successful year to date. The principal development was the creation of a new flagship 45,000 sq. ft. store for TK Maxx which anchors the rear of the centre. TK Maxx took possession of the unit in August and they have informed us that this unit has performed at the very top of their expectations and is one of the company's best performing stores in the UK. Total costs for the construction were approximately Â£5.0m, and the incremental rent of this unit is some Â£0.4m per annum. Elsewhere in the centre, we completed the extension of four shop units. These units were "shaded" by the River Island unit, and they have now become much more prominent. Three of the four units were pre-let to Starbucks, Evans and Blue Banana, while the fourth was subsequently let to La Coupe Hairdressers at a record Zone A rent for the centre of Â£91 per sq. ft. The fact that this letting took place right at the end of the year, in the midst of what is now known to be the worst lettings market during the economic crisis to date, underscores the strength of demand for space in this centre. We suffered our biggest single tenant default at Orchard Square when Zavvi went into administration at the end of December, although it traded there on full rent until mid-February. I am pleased to report that we quickly received three offers on this unit, all from leading fashion retailers. The unit is currently under offer at a rent in excess of the previous passing rent. We have agreed to give the incoming tenant an incentive package equivalent to 18 months of rent. Given that most retailers who are currently looking for larger stores are demanding substantially lower rents than those previously passing, and incentive packages of up to three years rent, we consider that this again shows the strength of Orchard Square. Once this unit is let, some Â£1.7m per annum out of the centre's total annual rent of Â£2.8m will be produced by the three anchor tenants, all of whom are successful established retailers with excellent covenants. The London Portfolio The London Portfolio continues to perform well and we have achieved a number of notable successes. We previously reported to shareholders that we sold Chenil House on King's Road, Chelsea for Â£14.9m in July last year. The market has now shown that this disposal was particularly well timed and we no longer have exposure to the weakening high-end residential development market. At The Mall, Islington, we successfully appealed a refusal by Islington Council to grant listed building consent. We had applied to replace the ground floor slab and to remove kiosks at ground floor level. The Planning Inspector has allowed the works to proceed and we were awarded costs. This decision came after the end of 2008 and has therefore not been reflected in our valuations. The ground and basement are pre-let to Jack Wills, the fashion retailer, at Â£275,000 per annum. This part of The Mall formerly produced a net Â£100,000 per annum. The cost of the works is anticipated to be around Â£1.0m, which will be funded from our existing resources. At Antiquarius on King's Road, Chelsea, we have exchanged an agreement for the lease of the entire building with Anthropologie, one of the brands owned by Urban Outfitters Inc, at a rent of Â£1.1m per annum. This compares with an estimated net income of approximately Â£0.5m from Antiquarius in its current form. The anticipated costs of these works are approximately Â£2.0m, which will also be funded from our existing cash balances. We have applied for the requisite listed building and freeholder consents. We are confident that we should receive both consents and will notify shareholders once they are obtained. We have recently taken the decision to not proceed with a proposed redevelopment of Brixton Village, one of our two indoor markets in Brixton. This development would have created several blocks of flats and reinstated the market on the ground floor at completion. This decision is a consequence of the sharp fall in residential values, which we do not foresee improving sufficiently to make this project viable for some time. We are exploring a number of different ways to improve revenues at Brixton Village. Market Row, our other investment in Brixton, has performed well in 2008 and is fully let. We believe that this market will continue to trade well in the current climate as shoppers look for good value and diverse ranges of products on offer. Elsewhere, our portfolio continues to perform well in the current climate. Analytical Ventures This joint venture was established with Bank of Scotland, now Lloyds Banking Group, in March 2008 to acquire prime retail properties. So far, it has acquired Westgate House in Halifax, for which it paid Â£10.5m in July 2008. The ground floor shops are now fully let following the completion of the last remaining letting to William Hill at Â£45,000 per annum. The tenants at this property have strong covenants, and we are confident that this property will continue to perform well. Outlook Most commentators agree that 2009 is unlikely to witness a strong recovery in either the economy or the property market. We also remain cautious about the outlook and will continue to intensively manage our portfolio. Our successful strategy of focusing on prime locations and high quality tenants will continue to reap rewards for us. We believe that the quality of our asset base will be at the forefront of any market recovery. In addition, the further incremental rents we are generating from our remaining pre-let developments will stand us in good stead. John Heller Chief executive 17 April 2009 FINANCE DIRECTOR'S REPORT The exceptionally challenging conditions in the second half of 2008 have continued into the current year. We have always managed the group on a prudent cash flow basis and this remains the case today. This strategy has placed us in a strong position to cope with the difficult conditions, and is more relevant than ever in the current environment. Even in these difficult trading conditions we have met our loan covenants. Due to the relatively long term nature of our financing, none of the Group's term loans expire for some time. The first loan that will require refinancing is our Revolving Credit Facility with Royal Bank of Scotland which expires in August 2011. Cash Flow The group remains in a satisfactory financial position and currently has some Â£25.9m of unencumbered cash and undrawn facilities. During the year we sold Chenil House, Kings Road, London for Â£14.9m and a retail property in Bradford for Â£1.5m. The proceeds were used to pay down our Revolving Credit Facility, which is now Â£69.4m drawn against a peak of Â£83.6m during the year, and to boost our cash resources. The group completed major developments in 2008 at our centre in Sheffield where some Â£5.3m was spent building a new 45,000 sq. ft. store for TK Maxx and extending four other units. These are discussed in the Chief Executive's report. In accordance with our normal practice, these developments were only undertaken once the majority of the space was pre-let. Further works are planned for 2009 at The Mall, Islington where we will build a new store for Jack Wills, the fashion retailer, and potentially at Antiquarius where we intend to develop a new store for the American chain Anthropologie, subject to obtaining the necessary consents. The anticipated cost of these works is around Â£3.0m, and will be funded from our cash resources. Once completed the two units will produce an annual income of Â£1.4m, an incremental rent of Â£0.7m. Income Statement The group's loss before tax as reported under IFRS was Â£57.3m (2007: Â£23.9m). This figure is arrived at after deducting the fall in value of the property portfolio and a number of other non-cash items. These adjustments are required under IFRS accounting standards and they lead to significant volatility in the reporting of our results. However, the underlying performance of the group, on a management adjusted basis to reflect operations more clearly, was as shown in the table below. The cash items loss of Â£1.0m has for the most part been caused by deliberately holding vacant a number of units in order to carry out development and the writing off to the income statement of certain costs that related to the early stages of some redevelopments. Most of these were completed during the year and are now income producing. Once our last remaining pre-let development activities are concluded, the group will on current forecasts be cash positive for the foreseeable future. The average cost of debt has remained at 6.1% for the year. This is because we took out a series of interest rate swaps to fix the cost of debt going forward. These swaps are still in place and provide certainty of interest payments over a long period irrespective of the current rate prevailing. The current tax charge for 2008 is Â£0.5m. With a deferred tax recovery of Â£10.3m, this has resulted in total tax credit for the year of Â£9.8m. 2008 2007 Per Per Cash Non-cash income Cash Non-cash income items items statement items items statement Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net rental income 8,958 - 8,958 5,577 - 5,577 Income and gains on investments held for trading 298 - 298 144 - 144 Cost of evaluation and goodwill - - - (339) (173) (512) Profit on sale of investment properties 897 - 897 2,295 - 2,295 Net decrease on revaluation of investment properties - (33,125) (33,125) - (25,208) (25,208) Net decrease in value of investments held for trading - (1,530) (1,530) - (16) (16) Operating profit/(loss) 10,153 (34,655) (24,502) 7,677 (25,397) (17,720) Share of joint ventures and associates 131 (547) (416) 109 1,015 1,124 Interest rate derivative - (21,063) (21,063) - - - Net interest (11,285) - (11,285) (7,291) - (7,291) (Loss)/profit before taxation (1,001) (56,265) (57,266) 495 (24,382) (23,887) Balance Sheet The overall property portfolio, including the properties owned by Bisichi Mining plc, Dragon Retail Properties and Analytical Ventures, was Â£243.7m. On a like-for-like basis this shows a fall of 13.3% for the year. The valuation of the interest rate swaps has been calculated on the basis of the net present value of the additional cost of interest payable over the terms of the hedging arrangement against the prevailing rates as at 31 December 2008. The Directors consider this to be the most appropriate method for calculating the value of these products. There is no independent market for our swap instruments which we could use to provide a realistic independent valuation. Whilst this calculation shows a substantial liability on the balance sheet at the year end, several points should be noted: - the group has taken the swaps out in order to manage the business in a prudent manner going forward so that our cost of funds are a known amount; - we do not intend to cash in the swap for the foreseeable future; and - since taking out the derivatives the group has saved some Â£1.5m in interest payments up to the end of March 2009, Our underlying net assets on a management adjusted basis were as shown in the tables below: 2008 Mark-to- market of Deferred interest Head Adjusted Per IFRS tax swaps leases net assets Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment properties 245,770 (27,238) 218,532 Other fixed assets 2,722 2,722 Investments in associate and joint ventures 8,360 8,360 Other net assets 810 810 Other non-current liabilities (49,662) (5,493) 19,616 27,238 (8,301) Net debt (167,694) (167,694) Net assets 40,306 (5,493) 19,616 - 54,429 Adjusted NAV per share 71.2p 2007 Investment properties 279,747 (31,671) 248,076 Other fixed assets 886 886 Investments in associate and joint ventures 8,282 8,282 Other net assets 13,934 (1,447) 12,487 Other non-current liabilities (44,742) 446 31,671 (12,625) Net debt (169,116) (169,116) Net assets 88,991 446 (1,447) - 87,990 Adjusted NAV per share 115.5p Should interest rates rise again in the future we will be protected against volatility, and the swaps would be shown in our balance sheet with a positive value. The volatility of the interest rates is clearly demonstrated in that if these hedges were revalued as at the 7 April 2009 the liability before deferred taxation relief would be Â£11.6m against Â£19.6m at 31 December 2008. It remains our policy not to repay the debt early and to maintain the interest rate protection. Under IFRS there was a write down of the property portfolio of Â£33.1m, and a revaluation of our interest rate swaps in light of current low interest rates, of Â£15.1m. As a result, the net assets of the group are now calculated at Â£40.3m (2007: Â£89.0m). Accounting judgments The most significant judgements made in preparing these accounts relate to the carrying value of the properties, investments and hedges which are stated at open market value. The Group uses external professional valuers to determine the values of our properties. Based on the judgements used to prepare the accounts, the Directors also reviewed the cash flow forecasts of Group and the underlying assumptions on which they are based. They are satisfied that there are sufficient resources for the Group to continue to trade over the foreseeable future. Dividends In order to preserve cash in the business the company is proposing an amount equivalent to a final dividend of 1.2p. This makes a total for the year of 1.95p per share - an equivalent amount to the total dividend for 2007. This is to be made up of 0.4p per share in cash and 0.8p per share as a bonus share issue. This will save the company some Â£0.6m of cash. Our associated company Bisichi, in which we hold a 41.7% stake, had a strong year and produced profits of Â£2.1m. This figure is after a revaluation deficit under IFRS of Â£3.9m. Of Bisichi's trading profit of Â£6.0m, Â£5.2m was earned in the second half of the year. I feel confident that the policy of prudently managing the Group's cash resources will benefit us as we go through this period of uncertainty. Robert Corry Finance Director 17 April 2009 DIRECTORS AND ADVISORS DIRECTORS EXECUTIVE DIRECTORS *Michael A Heller ma fca (Chairman) John A Heller llb mba (Chief executive) Robert J Corry ba fca (Finance Director) Michael C Stevens fca NON-EXECUTIVE DIRECTORS â€ Howard D Goldring bsc (econ) aca Howard Goldring has been a member of the board since July 1992 and is a global asset allocation specialist. He is chairman of Delmore Asset Management Limited which manages investment portfolios and provides global asset allocation advice to private clients, family offices and pension funds. From 1997-2003 he was consultant director on global asset allocation to Liverpool Victoria Asset Management Limited. #â€ Clive A Parritt fca cf fiia Clive A Parritt joined the board on 1 January 2006. He is a chartered accountant with over 30 years experience of providing strategic, financial and commercial advice to businesses. He is chairman of Barronsmead VCT 2 plc and BG Consulting Group Limited as well as a non-executive director of F&C US Smaller Companies plc. He is also a member of the Council and Board of the Institute of Chartered Accountants in England and Wales. He is chairman of the audit committee and as Senior Independent Director he chairs the Nomination and Remuneration Committees. * Member of the nomination committee # Senior independent director â€ Member of the audit, remuneration and nomination committees Secretary & registered office Michael C Stevens FCA Carlton House, 22a St James's Square London SW1Y 4JH Director of property Mike J Dignan FRICS Auditor Baker Tilly UK Audit LLP Principal bankers HSBC Bank PLC Lloyds Banking Group PLC National Westminster Bank PLC Royal Bank of Scotland PLC Solicitors Olswang Pinsent Masons LLP Stockbroker Oriel Securities Limited Registrars & transfer office Capita Registrars, Northern House Woodsome Park Fenay Bridge Huddersfield W.Yorkshire HD8 0LA Telephone 0871 664 0300 (Calls cost 10p per minute + network extras) or +44 208 639 3399 for overseas callers Website: www.capitaregistrars.com Email: ssd@capitaregistrars.com Company registration number 341829 (England and Wales) Website www.lap.co.uk E-mail admin@lap.co.uk DIRECTORS' REPORT The directors submit their report and the audited accounts, for the year ended 31 December 2008. Activities The principal activities of the group during the year were property investment and development, as well as investment in joint ventures and an associated company. The associated company is Bisichi Mining PLC in which the company holds a 42 per cent interest. Bisichi Mining PLC is listed on the London Stock Exchange and operates in England and South Africa with subsidiaries which are involved in overseas mining and mining investment. Business Review Review of the group's development and performance The Chairman's Statement, Chief Executive's Report and Finance Director's Report on the preceding pages 2 to 19 provide a comprehensive review and assessment of the group's activities during the year as well as its position at the year end and prospects for the forthcoming year. Property activities The group is a long-term investor in property. It acquires retail properties, actively manages those assets to improve rental income and thus enhance the value of its properties over time. In reviewing performance, the principal areas regularly monitored by the group include: â€¢ Rental income - the aim of the group is to maximise the maintainable income from each property by careful tenant management supported by sympathetic and revenue enhancing development. Income may be affected adversely by the inability of tenants to pay their rent. Rent collection and tenant quality are monitored carefully. This risk is minimised as a result of the diversified tenant base, which should limit the impact of the failure of any individual tenant. â€¢ Cash flow - allowing for voids, acquisitions, development expenditure,disposals and the impact of operating costs and interest charges, the group aims to maintain a positive cash flow taking one year with another. â€¢ Financing costs - the exposure of the group to interest rate movements is managed by the use of swap arrangements (see note 18 for full details of the contracts in place). These swap arrangements are designed to ensure that our interest costs are fixed and always covered by anticipated rental income. Once put in place we intend that such swaps are generally retained until maturity. Details of key estimates adopted are contained in the accounting policies note. â€¢ Property valuations - market sentiment and economic conditions have a direct effect on property valuations, which therefore can vary significantly (upwards or downwards) over time. Bearing in mind the long-term nature of the group's business, valuation changes have little direct effect on the ongoing activities or the income and expenditure of the group. Tenants generally have long-term leases, so rents are unaffected by short-term valuation changes. Borrowings are secured against property values and if those values fall very significantly, this could limit the ability of the group to develop the business using external borrowings. The risk is minimised by trying to ensure that there is adequate cover to allow for fluctuations in value on a short-term basis. It continues to be the policy of the group to realise property assets when the valuation of those assets reaches a level at which the directors consider that the long-term rental yield has been reached. The group also seeks to acquire additional property investments on an opportunistic basis when the potential rental yields offer scope for future growth. Investment activities The investments in joint ventures and the associate are for the long term. The group is an investor in the associate and manages the UK property assets of the associate. However the principal activity of the associate is overseas mining investment (principally in South Africa). The investment is held to generate income and capital growth over the longer term. The other listed investments are held as current assets to provide the liquidity needed to support the property activities while generating income and capital growth. Investments in property are made through joint ventures when the financing and spreading of risk make it desirable. Corporate responsibility Environment The group's principal UK activity is property investment providing premises which are rented to retail businesses. We seek to provide those tenants with good quality premises from which they can operate in an efficient and environmentally friendly manner. Wherever possible, improvements, repairs and replacements are made in an environmentally efficient manner and waste re-cycling arrangements are in place at all the company's locations. Employment The group's policy is to attract staff and motivate employees by offering competitive terms of employment. The group provides equal opportunities to all employees and prospective employees including those who are disabled. Performance indicators Our success is principally measured in terms of net asset value per share and trading cash flow (where we aim over a period of time to deliver a positive cash return) and net asset value per share after adjusting for valuation volatility and excluding IFRS adjustments. The directors consider that the Key Performance Indicator of the Group is the Net Asset per Share value shown at the foot of the Balance Sheet on page 34. Cash flow is shown on page 36. Dividend Policy and Capitalisation Issue An interim dividend for 2008 of 0.75p was paid on 23 January 2009 (2007 interim dividend: 0.65p paid on 25 January 2008). The directors recommend payment of a final dividend for 2008 of 0.40p per ordinary share of 10 pence each (the Final Dividend and Ordinary Share respectively). In addition to the Final Dividend the directors propose to issue Ordinary Shares in lieu of the full final dividend that would otherwise have been paid, by issuing to existing shareholders new Ordinary Shares (the Capitalisation Issue) with an aggregate value equal to 0.80p (the Capitalisation Amount) for each Ordinary Share held by them. Subject to shareholder approval, the total dividend per Ordinary Share for 2008 will be 1.15p per Ordinary Share. When added to the Capitalisation Amount, this results in an equivalent nominal amount of 1.95p per Ordinary Share (2007 total dividend: 1.95p). The Final Dividend of 0.40p per Ordinary Share will be payable on 3 July 2009 to shareholders registered at the close of business on 5 June 2009. The Capitalisation Issue will take effect on 3 July 2009 to shareholders registered at the close of business on 5 June 2009. The Capitalisation Issue is conditional on, amongst other things, shareholders' approval at the AGM of the company to be held on 10 June 2009 of the granting of authority to the directors to allot and issue Ordinary Shares in connection with the Capitalisation Issue (the Capitalisation Issue Shares). The Capitalisation Issue also requires shareholders to authorise the capitalisation of reserves to allow the Capitalisation Issue Shares to be issued. Further details concerning the Capitalisation Issue (including certain general taxation considerations in respect of the Capitalisation Issue) are set out below and a summary and explanation of the resolution to be proposed at the Annual General Meeting in respect of the Capitalisation Issue is set out on page 23 of this Directors' Report. The Capitalisation Issue Reason for Dividend Policy and Capitalisation Issue In light of current economic conditions, the board of directors feels that it is imperative that the group maximises its financial flexibility, including conserving cash wherever possible, and accordingly considers that it would be prudent to issue the Capitalisation Issue Shares in lieu of a cash dividend equal to 0.80p per Ordinary Share. Also, the Capitalisation Issue enables shareholders to build up their shareholding in the company without incurring dealing costs or stamp duty. The board of directors reserves the right not to complete the Capitalisation Issue if it considers such action would not be in the best interests of the company or its shareholders. Entitled Shareholders Holders of Ordinary Shares on the register as at 5 June 2009 will be entitled to receive Capitalisation Issue Shares. Accordingly, the last date transfers will be accepted for registration to participate in the Capitalisation Issue will be 5 June 2009 (the Capitalisation Issue Record Date). Entitlement to Capitalisation Issue Shares Each shareholder's entitlement to Capitalisation Issue Shares will be calculated by taking the Capitalisation Amount per Ordinary Share multiplied by the number of Ordinary Shares held by that shareholder at the Capitalisation Issue Record Date and dividing that amount by the Capitalisation Issue Price. The Capitalisation Issue Price will be the average of the middle market quotations for Ordinary Shares for the three dealing days starting on, and including, 3 June 2009, the day when the Ordinary Shares are first quoted ``ex-dividend'', as derived from the Official List of the UK Listing Authority. The Capitalisation Issue Price, once fixed, will also be notified on the company's website at www.lap.co.uk. Entitlements to Capitalisation Issue Shares will be rounded down to the nearest whole number of Ordinary Shares. No fraction of an Ordinary Share will be allotted. The Capitalisation Issue Shares The company will apply to the UK Listing Authority for the Capitalisation Issue Shares to be admitted to the Official List and to the London Stock Exchange for the Capitalisation Issue Shares to be admitted to trading on its market for listed securities on 3 July 2009. Subject to the applications being successful, the Capitalisation Issue Shares are expected to be allotted on and dealings in Capitalisation Issue Shares are expected to begin on or around 3 July 2009. The Capitalisation Issue Shares will be issued fully paid and will rank pari passu in all respects with the existing Ordinary Shares, including the right to receive all dividends or other distributions declared, made or paid after the date of their issue (but excluding for the avoidance of doubt the Final Dividend). Subject to the Capitalisation Issue becoming effective: (a) in respect of Ordinary Shares held in certificated form on the Capitalisation Issue Record Date, share certificates will be issued in respect of Capitalisation Issue Shares and posted to shareholders as soon as reasonably practicable after the Capitalisation Issue becomes effective; and (b) in respect of Ordinary Shares held in uncertificated form (i.e. CREST) on the Capitalisation Issue Record Date, prior to the commencement of dealings in the Capitalisation Issue Shares on the London Stock Exchange, the appropriate stock account in CREST of the relevant shareholder will be credited with such person's entitlement to Capitalisation Issue Shares. The Capitalisation Issue Shares are expected to be eligible to be traded through the CREST system with effect from the date of commencement of dealings on the London Stock Exchange. Dividends The timing of the payment of the company's cash dividends will not be affected by the Capitalisation Issue. All mandates and other instructions in force relating to dividend payments will, unless and until revoked, remain in force. Share Plans The company operates an HMRC approved share incentive plan. Executive director and staff participations may be adjusted to take account of the Capitalisation Issue in accordance with the rules of the scheme. Participants will be contacted separately and further information provided as to how their entitlements might be affected. UK tax treatment of the Capitalisation Issue The directors have sought advice as to the expected tax treatment of shareholders on receipt of Capitalisation Issue Shares. The following statements are intended only as a general guide to current UK tax law and practice of Her Majesty's Revenue & Customs (HMRC). They are intended to apply only to shareholders who are resident or ordinarily resident in the UK for UK tax purposes, who hold their Ordinary Shares as investments and who are the beneficial owners of their Ordinary Shares. The statements may not apply to certain classes of shareholders such as dealers in securities. Shareholders who are in any doubt as to their tax position regarding the acquisition, ownership and disposition of the Capitalisation Issue Shares or who are subject to tax in a jurisdiction other than the UK should consult their own tax advisers. The Capitalisation Issue should be treated as a reorganisation of the company's share capital for the purposes of taxation of chargeable gains. Accordingly, a shareholder should not be subject to a charge to tax on capital gains (CGT) upon receipt of Capitalisation Issue Shares. Instead, a shareholder's existing Ordinary Shares and the Capitalisation Issue Shares should, taken together, be treated for CGT purposes as the same asset, acquired at the time and for the same price that the shareholder acquired their existing Ordinary Shares. A subsequent sale or other disposal by a shareholder of some or all of the Capitalisation Issue Shares might give rise to a CGT liability for that shareholder. The receipt of Capitalisation Issue Shares should not give rise to a charge to tax on income for shareholders. The Capitalisation Issue should not be subject to stamp duty or stamp duty reserve tax. Overseas Shareholders It is the responsibility of overseas shareholders to ensure that all relevant laws and regulations in overseas jurisdictions applicable to them or their shareholdings (for example, exchange control laws or regulations) are complied with and that they obtain any permissions or consents required to be obtained, or make any filings required to be made by them. Shareholders should consult their professional advisers if they are not sure whether any formalities must be observed in order to receive Capitalisation Issue Shares. It is the responsibility of any person resident outside the UK wishing to receive Capitalisation Issue Shares to be satisfied as to full observance of the laws of the relevant territory, including obtaining any government or other consents which may be required and observing other formalities in such territories. The company's ordinary shares held in treasury During 2008 the company issued 293,680 of its own shares from Treasury for an average price of 44.0p which increased the "issued share capital" by the same number of shares (see table below for details). At 31 December 2008 5,873,865 (2007: 6,167,545) shares were held in treasury with a market value of Â£1,468,466 (2007:Â£5,273,250). At the Annual General Meeting (AGM) in June 2008 members renewed the authority for the company to purchase up to 10 per cent of its issued ordinary shares. The company will be asking members to renew this authority at the next AGM in June 2009. Movements in Treasury Transaction Number of shares during the year: price shares Treasury shares held at 1 6,167,545 January 2008 November 2008 - Issue of Treasury shares in connection with the HMRC approved share 44.00p (293,680) incentive plan Treasury shares held at 31 5,873,865 December 2008 Treasury shares are not included in issued share capital for the purposes of calculating earnings per share and net assets per share, and they do not qualify for dividends payable. Investment properties All of the freehold and long leasehold properties of the company and its subsidiaries were revalued as at 31 December 2008 by external professional firms of chartered surveyors - Allsop LLP, London (98.31 per cent of the portfolio), and Atisreal Limited, Leeds (1.69 per cent). The valuations, which are reflected in the financial statements, amount to Â£218.5 million (2007: Â£248.1 million). Taking account of prevailing market conditions, the valuation of group properties at 31 December 2008 resulted in a reduction of Â£33.1 million (2007: Â£25.2 million). This has been reflected in the income statement in accordance with the requirements of IFRS. The impact of property revaluations on the company's joint ventures (Analytical Ventures Limited and Dragon Retail Properties Limited) and the associate company (Bisichi Mining plc) was a reduction of Â£4.2 million (2007 Â£3.1 million). The proportion of this revaluation attributable to the Group (net of taxation) is reflected in the income statement and the consolidated balance sheet. Financial instruments Note 18 to the financial statements sets out the risks in respect of financial instruments. The board reviews and agrees overall treasury policies, delegating appropriate authority for applying these policies to the Chief Executive and Finance Director. Financial instruments are used to manage the financial risks facing the group - speculative transactions are prohibited. Treasury operations are reported at each board meeting and are subject to weekly internal reporting. Hedging arrangements have been put in place in the company, subsidiaries and joint ventures in order to limit the exposure to interest rate risk. Directors M A Heller, J A Heller, R J Corry, H D Goldring, C A Parritt and M C Stevens were directors of the company for the whole of 2008. R J Corry, H D Goldring, J A Heller and C A Parritt are retiring by rotation at the Annual General Meeting in 2009 and offer themselves for re-election. Brief details of the directors offering themselves for re-election are as follows: Robert Corry has been Finance Director since 1993. He has a contract of employment determinable at six months notice. Robert Corry is a Chartered Accountant and has worked in the retail and real estate sectors for much of his career. Howard Goldring has been a director since 1992 and has a contract of service determinable at three months notice. He is a member of the audit, remuneration and nomination committees. Howard Goldring is a Chartered Accountant and global asset allocation specialist. He is executive chairman of Delmore Asset Management Limited which specialises in the management of investment portfolios and the provision of asset allocation advice for private clients, family offices and pension funds. The board has considered the re-appointment of Howard Goldring and recommends his re-election as a director. His specialised economic knowledge and broad business experience are of significant benefit to the business. John Heller has been a director since 1998 and was appointed Chief Executive in September 2001. He has a contract of employment determinable at twelve months notice. Clive Parritt has been a director since January 2006 and has a contract of service determinable at three months notice and is the Senior Independent Director and chairman of the audit, remuneration and nomination committees. He is a Chartered Accountant with over 30 years experience in providing strategic, financial and commercial advice to business. The board has considered the re-appointment of Clive Parritt and recommends his re-election as a director. His financial knowledge and broad commercial experience are of significant benefit to the business. Directors' interests The interests of the directors in the ordinary shares of the company, including family and trustee holdings, where appropriate, were as follows: Beneficial Non-beneficial interests interests 31 Dec 08 1 Jan 08 31 Dec 08 1 Jan 08 M A Heller 4,871,757 4,871,757 18,520,634 18,520,634 R J Corry 359,110 342,065 - - H D Goldring 11,080 11,080 - - J A Heller 1,153,971 1,139,691 +13,520,634+13,520,634 C A Parritt 24,364 24,364 - - M C Stevens 492,267 475,222 ++777,534 ++483,854 â€ These non-beneficial holdings are duplicated with those of M A Heller. ++ The non-beneficial interest of M C Stevens arises by reason of his being a director of London & Associated Securities Limited, a company which acts as a trustee. No director had any material interest in any contract or agreement with the group during the year other than as shown in this annual report. (Please see note 21 and the remuneration report). Between 1 January 2009 and the date of this report the beneficial interests of a number of directors in the ordinary shares of the company have increased to the following totals: M A Heller 5,351,757 R J Corry 631,403 J A Heller 1,438,744 M C Stevens 724,320 No other changes in these holdings have taken place between 31 December 2008 and the date of this report. Details of options granted to directors to subscribe for new ordinary shares of the company are shown in the Remuneration Report under "Share option schemes" on page 28. The beneficial holdings of directors above include their interests in the Share Incentive Pla Substantial shareholdings At 31 December 2008 M A Heller and his family had an interest in 43.09 million shares of the company, representing 56.4 per cent of the issued share capital net of treasury shares (2007: 43.08 million shares representing 56.6 per cent). Cavendish Asset Management Limited has an interest in 3,470,351 shares representing 4.54 per cent of the issued share capital of the company (2007: 2,685,200 shares representing 3.5 per cent). Between 1 January 2009 and the date of this report the following changes occurred: The interest of M A Heller and his family increased to 43.86 million shares in the company, representing 56.42 per cent of the issued share capital net of Treasury shares. Cavendish Asset Management Limited increased their interests to 4,739,228 shares representing 6.10 per cent of the issued share capital of the company net of Treasury shares. The company is not aware of any other holdings exceeding 3 per cent of the issued share capital and no relevant changes have occurred since the year end. Takeover Directive The company has one class of share capital, namely ordinary shares. Each ordinary share carries one vote. All the ordinary shares rank pari passu. There are no securities issued in the company which carry special rights with regard to control of the company. The identity of all significant direct or indirect holders of securities in the company and the size and nature of their holdings is shown in "Substantial shareholdings" above. The rights of the ordinary shares to which HMRC approved Share Incentive Plan relate, are exercisable by the trustees on behalf of the employees. There are no restrictions on voting rights or on the transfer of ordinary shares in the company save in respect of Treasury Shares. The rules governing the appointment and replacement of directors, alteration of the articles of association of the company and the powers of the company's directors accord with usual English company law provisions. Each director is re-elected at least every three years. The company has requested authority from shareholders to buy back its own ordinary shares and there will be a resolution to renew the authority at this year's AGM. The company is not party to any significant agreements that take effect, alter or terminate upon a change of control of the company following a takeover bid. The company is not aware of any agreements between holders of its ordinary shares that may result in restrictions on the transfer of its ordinary shares or on voting rights. There are no agreements between the company and its directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid. Statement as to disclosure of information to auditors The directors in office on 31 December 2008 have confirmed that, as far as they are aware, there is no relevant audit information of which the auditor is unaware. All of the directors have confirmed that they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. Corporate governance The company has adopted the Guidance for Smaller Quoted Companies (SQC's) published by the Quoted Companies Alliance (QCA). The QCA provides guidance to SQC's. The QCA's guidance covers the implementation of the Revised Combined Code on Corporate Governance for SQC's and the paragraphs below set out how the company has applied this guidance during the year. The company has complied with the QCA's guidance throughout the year, except insofar that non-executive directors are not appointed for fixed terms (section A.7.2). Principles of corporate governance The board promotes good corporate governance in the areas of accountability and risk management as a positive contribution to business prosperity. The board endeavours to apply corporate governance principles in a sensible and pragmatic fashion having regard to the circumstances of the business. The key objective is to enhance and protect shareholder value. Board structure During the year the board comprised four executive directors, being the chairman, chief executive, finance director and company secretary, and two non-executive directors. Their details appear on page 21. The board is responsible to shareholders for the proper management of the group. A directors' responsibility statement in respect of the accounts is set out on page 32. The non-executive directors have a particular responsibility to ensure that the strategies proposed by the executive directors are fully considered. To enable the board to discharge its duties, all directors have full and timely access to all relevant information and there is a procedure for all directors, in furtherance of their duties, to take independent professional advice, if necessary, at the expense of the group. The board has a formal schedule of matters reserved to it and normally has eleven regular meetings scheduled each year. Additional meetings are held for special business as required. The board is responsible for overall group strategy, approval of major capital expenditure and consideration of significant financial and operational matters. The board committees, which have written terms of reference, deal with specific aspects of the group's affairs: â€¢ The nomination committee is chaired by C A Parritt and comprises the non-executive directors and the executive chairman. The committee is responsible for proposing candidates for appointment to the board, having regard to the balance and structure of the board. In appropriate cases recruitment consultants are used to assist the process. All directors are subject to re-election at least every three years. â€¢ The remuneration committee is responsible for making recommendations to the board on the company's framework of executive remuneration and its cost. The committee determines the contract terms, remuneration and other benefits for each of the executive directors, including performance related bonus schemes, pension rights and compensation payments. The board itself determines the remuneration of the non-executive directors. The committee comprises the non-executive directors and it is chaired by C A Parritt. The executive chairman is normally invited to attend. The directors' remuneration report is set out on pages 27 to 29. â€¢ The audit committee comprises the non-executive directors and is chaired by C A Parritt. The audit committee report is set out on page 30. The audit committee comprises the non-executive directors and is chaired by C A Parritt. The audit committee report is set out on page 30. Board and board committee meetings in 2008 The number of regular meetings during the year and attendance was as follows: Meetings Meetings held attended R J Corry Board 11 11 Audit committee 2 2 H D Board 11 10 Goldring Audit committee 2 2 Nomination 1 1 committee 1 1 Remuneration committee M A Board 11 11 Heller Nomination 1 1 committee 1 1 Remuneration committee J A Board 11 10 Heller Audit committee 2 2 C A Board 11 11 Parritt Audit committee 2 2 Nomination 1 1 committee 1 1 Remuneration committee M C Board 11 10 Stevens Audit committee 2 2 Performance evaluation - board, board committees and directors The performance of the board as a whole and of its committees and the non-executive directors is assessed by the chairman and the chief executive and is discussed with the senior independent director. Their recommendations are discussed at the nomination committee prior to proposals for re-election being recommended to the board. The performance of executive directors is discussed and assessed by the remuneration committee. The senior independent director meets regularly with the chairman, executive and non-executive directors individually outside of formal meetings. The directors will take outside advice in reviewing performance but have not found this to be necessary to date. Independent directors The senior independent non-executive director is C A Parritt. The other independent non-executive director is H D Goldring. Delmore Asset Management Limited (Delmore) is a company in which H D Goldring is a majority shareholder and director. Delmore provides consultancy services to the company on a fee basis. H D Goldring's association with Delmore and the length of his service on the board mean that the criteria for independence set out in the Combined Code of Corporate Governance are not met. However the board considers that the independence of H D Goldring is not impaired either because he has served on the board for more than nine years or because of his association with Delmore. The board therefore regards H D Goldring as being independent. The independent directors regularly meet prior to or after board meetings to discuss corporate governance and other issues concerning the group. Directors and officers liability insurance The group maintains directors and officers insurance, which is reviewed annually and is considered to be adequate by the company and its insurance advisers. Internal control The directors are responsible for the group's system of internal control and for reviewing its effectiveness at least annually. The board has designed the group's system of internal control in order to provide the directors with reasonable assurance that assets are safeguarded, that transactions are authorised and properly recorded and that material errors and irregularities are either prevented or would be detected within a timely period. However, no system of internal control can eliminate the risk of failure to achieve business objectives or provide absolute assurance against material misstatement or loss. The key elements of the control system in operation are: â€¢ The board meets regularly with a formal schedule of matters reserved for its decision and has put in place an organisational structure with clearly defined lines of responsibility and with appropriate delegation of authority; â€¢ There are established procedures for planning, approval and monitoring of capital expenditure and information systems for monitoring the group's financial performance against approved budgets and forecasts; â€¢ The departmental heads are required annually to undertake a full assessment process to identify and quantify the risks that face their departments and functions, and assess the adequacy of the prevention, monitoring and modification practices in place for those risks. In addition, regular reports about significant risks and associated control and monitoring procedures are made to the executive directors. The process adopted by the group accords with the guidance contained in the document "Internal Control Guidance for Directors on the Combined Code" issued by the Institute of Chartered Accountants in England and Wales. The audit committee receives reports from external auditors and from executive directors of the group. During the period, the audit committee has reviewed the effectiveness of the system of internal control as described above. The board receives periodic reports from all committees. There are no internal control issues to report in the annual report and financial statements for the year ended 31 December 2008 and up to the date of approval of the report and financial statements the board has not been required to deal with any related material internal control issues. The directors confirm that the board has reviewed the effectiveness of the system of internal control as described during the period. Communication with shareholders Communications with shareholders are given high priority. Extensive information about the group and its activities is provided in the Annual Report . The company's website www.lap.co.uk is also updated with all announcements and reports promptly when they are issued. There is a regular dialogue with the company's stockbroker and institutional investors. Enquiries from individuals on matters relating to their shareholdings and the business of the group are dealt with informatively and promptly. The company's website is under continuous development to enable better communication with existing and potential new shareholders. Payments tosuppliers The company and the group agree the terms of contracts when orders are placed. It is group policy that payments to suppliers are made in accordance with those terms, provided that suppliers also comply with all relevant terms and conditions. Trade creditors outstanding at the year end represent 17.3 days annual trade purchases (2007: 10.0 days). Donations No political donations were made during the year (2007: Â£Nil). Donations for charitable purposes amounted to Â£250 (2007: Â£650). Going concern The group's business activities, together with the factors likely to affect its future development are set out in the Chairman's Statement, Chief Executive's Report and Finance Director's Report on the preceding pages 2 to 19. In addition Note 18 to the financial statements includes the group's treasury policy, interest rate risk, liquidity risk and hedging profile. The group has considerable financial resources together with long term leases with the majority of its tenants. The directors believe the group is well placed to successfully manage its business risks through the current uncertain economic outlook. After making enquiries and forecasts the directors confirm that they have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis has been adopted in the preparation of the financial statements. Annual General Meeting The Annual General Meeting will be held at the RAC Club, 89 Pall Mall, London SW1Y 5HS on Wednesday 10 June 2009 at 10.30 a.m. Items 1 to 10 will be proposed as ordinary resolutions. More than 50 per cent of shareholders' votes must be in favour for these resolutions to be passed. Items 11 and 12 will be proposed as special resolutions. At least 75 per cent of shareholders' votes must be in favour for these resolutions to be passed. The directors consider that the Capitalisation Issue and all of the resolutions to be put to the meeting are in the best interests of the company and its shareholders as a whole and accordingly the board unanimously recommends that shareholders vote in favour of all of the resolutions, as the directors intend to do in respect of their own beneficial holdings of Ordinary Shares. Please note that the following paragraphs are only summaries of certain of the resolutions to be proposed at the Annual General Meeting and not the full text of the resolutions. You should therefore read this section in conjunction with the full text of the resolutions contained in the notice of Annual General Meeting. Ordinary Resolution Resolution 10 - the Capitalisation Issue In order to enable the directors to effect the Capitalisation Issue the following ordinary resolution will be proposed at the Annual General Meeting:(a) To give the directors the authority to issue new Ordinary Shares in lieu of paying cash dividendsof an amount equivalent to 0.8p per Ordinary Share Paragraph (a) of Resolution 10 will grant the directors authority to capitalise such amount of the company's share premium account as the directors may determine up to Â£622,000 and to apply such sum in paying up the Capitalisation Issue Shares. (b) To give the directors the authority to allot Ordinary Shares Paragraph (b) of Resolution 10 will grant the directors the authority to allot authorised but unissued Ordinary Shares in the share capital of the company. If Resolution 10 is passed and taking into account the existing authority to allott shares granted to the directors at the Annual General Meeting held on 5 June 2007, the maximum aggregate amount the directors are authorised to allot represents 40.69 per cent. of the total issued ordinary share capital of the company (excluding treasury shares) as at 16 April 2009 (being the latest practicable date prior to the date of this Directors' Report). The authority given by paragraph (b) of Resolution 10 shall expire at the conclusion of the company's Annual General Meeting to be held in 2010 or, if earlier, 15 months from the date of the Annual General Meeting at which Resolution 10 is passed. The directors at present intend to use the authority conferred by paragraph (b) of Resolution 10 to allot the Capitalisation Issue Shares. Further information relating to the proposed Capitalisation Issue is set out on pages 22 and 23 of this Directors' Report. . Special Resolutions The following special resolutions will be proposed at the Annual General Meeting: 1. Resolution 11 - disapplication of pre-emption rights Shares allotted for cash must normally first be offered to shareholders in proportion to their existing shareholdings. The directors will, at the forthcoming Annual General Meeting of the company (Resolution 11), seek authority to allot shares for cash as if the pre-emption rights contained in Section 89(1) of the Companies Act 1985 did not apply up to a maximum of 5% of the company's issued share capital. The authority will expire at the earlier of the conclusion of the company's next Annual General Meeting and 15 months from the passing of Resolution 11. 2. Resolution 12 - purchase of own Ordinary Shares The effect of Resolution 12 to be proposed at the Annual General Meeting would be to give the company a general authority to purchase a maximum of 8,231,697 of its own Ordinary Shares of 10 pence each (representing approximately 10 per cent of the company's issued share capital). The minimum price (exclusive of expenses) which the company would be authorised to pay for each Ordinary Share would be 10 pence (the nominal value of each ordinary share). The maximum price (again exclusive of expenses) which the company would be authorised to pay for an ordinary share is an amount equal to the higher of (i) 105% of the average market price for an ordinary share for the five business days preceding any such purchase and (ii) the higher of the last independent trade for an ordinary share and the highest current independent bid for an ordinary share as derived from the trading venue where the purchase is carried out. The authority conferred by Resolution 12 will expire at the conclusion of the 2010 Annual General Meeting or 15 months from the passing of the resolution, whichever is the earlier. If granted, the authority would only be exercised if to do so would result in an increase in earnings per share or asset values per share and would be in the best interests of shareholders generally. In exercising the authority to purchase ordinary shares, the directors may treat the shares that have been bought back as either cancelled or held in treasury (or a combination of both). The total number of options to subscribe for new ordinary shares in the company as at 31 December 2008 was 120,000 shares representing 0.157% of the company's issued share capital as at 31 December 2008. Such number of options to subscribe for new ordinary shares would represent approximately 0.175% of the reduced issued share capital of the company assuming full use of the authority to make market purchases sought under Resolution 12. Other matters Baker Tilly UK Audit LLP have expressed their willingness to continue in office as auditors. A proposal will be made at the Annual General Meeting for their reappointment. By order of the board M C Stevens, Secretary 17 April 2009 Carlton House St James's Square London SW1Y 4JH REMUNERATION REPORT The remuneration committee is pleased to present its report for the year ended 31 December 2008. The remuneration committee is a formally constituted committee of the board and is comprised entirely of independent non-executive directors. The members of the committee are C A Parritt (chairman) and H D Goldring. Remuneration policy for executive directors and non-executive directors The principal function of the remuneration committee is to determine, on behalf of the board, the remuneration and other benefits of the executive directors and senior executives, including pensions, share options and service contracts. The company's policy is designed to attract, retain and motivate individuals of a calibre who will ensure the successful leadership and management of the company. Remuneration packages are designed to reward the executive directors and senior executives fairly for their contributions whilst remaining within the range of benefits offered by similar companies in the sector. The emoluments of each executive director comprise basic salary, a bonus at the discretion of the remuneration committee, provision of a car, premiums paid in respect of individual defined-contribution pension arrangements, health insurance premium and share options. The remuneration of non-executive directors is determined by the board, and takes into account additional remuneration for services outside the scope of the ordinary duties of non-executive directors. No pension costs are incurred on behalf of non-executive directors and they do not participate in the share option schemes. The board's policy is to grant share incentives to executive directors, managers and staff at appropriate times to provide them with an interest in the longer term development of the group. Service and employment contracts All executive directors have full-time contracts of employment with the company. Non-executive directors have contracts of service. No director has a contract of employment or contract of service with the company, its joint venture or associated companies with a fixed term which exceeds twelve months. All directors' contracts, as amended from time to time, have run from the date of appointment. Details of the directors standing for re-election are provided under `Directors' in the directors' report. It is the policy of the committee to issue employment contracts to executive directors with normal commercial terms and without extended terms of notice which could give rise to extraordinary termination payments. Summary of directors' terms Date of contract Unexpired term Notice period Executive directors M A Heller 01-Jan-71 Continuous 6 months J A Heller 01-May-03 Continuous 12 months R J Corry 01-Sep-92 Continuous 6 months M C Stevens 14-Oct-85 Continuous 6 months Non-executive directors H D Goldring 01-Jul-92 Continuous 3 months C A Parritt 01-Jan-06 Continuous 3 months The following information has been audited Directors' Remuneration for the year ended 31 December 2008 Total Total before before Salary Bonus Bonus Pension Pension Pension Pension And in in Other contrib- contrib Total contrib contrib Total fees cash shares benefits utions utions 2008 utions utions 2007 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Executive directors M A Heller* 7 - 150 47 204 - 204 353 - 353 J A Heller 300 150 156 52 658 30 688 1,002 30 1,032 R J Corry 166 25 6 24 221 118 339 272 113 385 M C Stevens 110 - 6 20 136 67 203 133 128 261 583 175 318 143 1,219 215 1,434 1,760 271 2,031 Non-executive directors H D Goldring* 35 - - 3 38 - 38 35 - 35 C A Parritt 25 - - - 25 - 25 23 - 23 B J O'Connell - - - - - - - 26 - 26 â€ 60 - - 3 63 - 63 84 - 84 Total remuneration for directors' 643 175 318 146 1,282 215 1,497 1,844 271 2,115 service during year * See "Directors" below and Note 21 "Related party transactions". Other benefits include the provision of car, health and other insurance and subscriptions. â€ B J O'Connell retired from the board on 31 October 2007. Pension schemes and incentives Three (2007: three) directors have benefits under money purchase pension schemes. Contributions in 2008 were Â£215,000 (2007: Â£271,000) as set out in the table above. Directors are not entitled to benefits under any bonus or incentive schemes apart from the share option and share incentive plan, details of which are set out below. Bonuses are awarded by the remuneration committee when merited. In assessing the performance of the executive team and, in particular to determine whether bonuses are merited the remuneration committee takes account of the overall performance of the business. Specific areas addressed include: enhancement of the asset base by effective development; changes in rental income generated; quality and risk profile of the tenant base; voids; timely acquisitions and disposals; security of funding arrangements; and overall teamwork. Bonuses were awarded by the remuneration committee to 4 executive directors during 2008 (2007: four). Directors Although M A Heller receives reduced remuneration in respect of his services to the group, the group does supply office premises, property management, general management accounting and administration services for a number of companies in which M A Heller has an interest. The board estimates that the value of these services, if supplied to a third party, would have been Â£275,000 (2007: Â£ 275,000) for the year. Further details of these services are set out in Note 21 "Related party transactions" to the financial statements. H D Goldring's company, Delmore Asset Management Limited provides consultancy services to the group. This is dealt with in Note 21 to the financial statements. Share option schemes The company has two share option schemes: 1. The HMRC approved scheme (Approved Scheme) was set up in 1986 in accordance with HMRC rules to gain HMRC approved status which gave the members certain tax advantages. No director has any options outstanding under the Approved Scheme. 2. The non-HMRC approved scheme (Unapproved Scheme) was set up in 1998 and is not subject to HMRC rules for approval. One executive director has options to subscribe for ordinary shares under the Unapproved Scheme as follows: Number of share options Option Exercised Granted 31 Exercisable 1January December price 2008 In 2008 in 2008 2008 from to Unapproved Scheme: M C Stevens 25.66p 50,000 - - 50,000 8-Mar-02 7-Mar-09 There are no performance criteria for the exercise of options under the Approved Scheme, as this was set up before such requirements were considered to be necessary. The exercise of options under the Unapproved Scheme is subject to the satisfaction of objective performance conditions specified by the remuneration committee, which conform to institutional shareholder guidelines and best practice provisions. These performance conditions have been achieved. M C Stevens exercised the 50,000 options above on 12 February 2009 when the mid-market price was 31.25p. The bid market price of London & Associated Properties PLC ordinary shares at 31 December 2008 was 25.0p (2007: 85.5p). During the year the share mid-market price ranged between 85.75p and 23.75p. Share incentive plan Following a recommendation of the remuneration committee the directors set up a HMRC approved share incentive plan (SIP) in May 2006. The purpose of the plan, which is open to all eligible LAP head office based executive directors and staff is to enable them to acquire shares in the company to give them a continuing stake in the group. The SIP comprises four types of share - (1) free shares under which the company may award shares up to the value of Â£3,000 each year, (2) partnership shares, under which members may save up to Â£1,500 per annum to acquire shares, (3) matching shares through which the company may award up to two shares for each share acquired as a partnership share, and (4) dividend shares acquired from dividends paid on shares within the SIP. 1. Free shares On 17 November 2008 (2007: 19 November) free shares of up to the annual maximum of Â£3,000 per member were awarded at 44.00p (2007: 96.25p) per share as follows: Number of members Number of shares Value of shares 2008 2007 2008 2007 2008 2007 Â£ Â£ Directors: R J Corry 1 1 6,818 3,117 3,000 3,000 J A Heller 1 1 6,818 3,117 3,000 3,000 M C Stevens 1 1 6,818 3,117 3,000 3,000 Staff 19 19 80,682 15,819 35,500 15,225 Total at 31 December 22 22 101,136 25,170 44,500 24,225 2. Partnership shares On 17 November 2008 (2007: 19 November) directors and staff were invited to complete partnership share agreements and commence saving for partnership shares over the period November 2008 to October 2009. At 31 December 2008 three directors and fifteen staff had saved a total of Â£2,847 towards the cost of partnership shares to be acquired in November 2009. The shares will be acquired at the prevailing market price on the day of acquisition. Partnership shares issued: acquired on 17 November 2008: Number of members Number of shares Value of shres 2008 2007 2008 2007 2008 2007 Directors: Â£ Â£ R J Corry 1 1 3,409 1,558 1,500 1,500 J A Heller 1 1 3,409 1,558 1,500 1,500 M C Stevens 1 1 3,409 1,558 1,500 1,500 Staff 19 19 53,955 23,526 23,740 22,650 Total at 31 December 22 22 64,182 28,200 28,240 27,150 3. Matching shares The partnership share agreements for the year to 31 October 2008 provide for two matching shares to be awarded free of charge for each partnership share acquired in November 2008. On 17 November 2008 128,364 matching shares were allocated (2007: 56,417). Matching shares will usually be forfeited if a member leaves employment in the group within 5 years of their grant. Matching shares granted: Number of members Number of shares Value of shares 2008 2007 2008 2007 2008 2007 Â£ Â£ Directors: R J Corry 1 1 6,818 3,117 3,000 3,000 J A Heller 1 1 6,818 3,117 3,000 3,000 M C Stevens 1 1 6,818 3,117 3,000 3,000 Staff 19 19 107,910 47,066 47,480 45,301 Total at 31 December 22 22 128,364 56,417 56,480 54,301 4. Dividend shares Dividends on shares acquired under the SIP will be utilised to acquire additional shares. Accumulated dividends received on shares in the SIP to 31 December 2008 amounted to Â£6,833 (2007: Â£677). The SIP is set up as an employee benefit trust - The trustee is London & Associated Securities Limited, a wholly owned subsidiary of LAP, and all shares and dividends acquired under the SIP will be held by the trustee until transferred to members in accordance with the rules of the SIP. (The trustee acquired the Dividend Shares on 6 March 2009). The following information is unaudited The graph illustrates the company's performance as compared with a broad equity market index over a five year period. Performance is measured by total shareholder return. The directors have chosen the FTSE All Share - Total Return Index as a suitable index for this comparison as it gives an indication of performance against a large spread of quoted companies. C A Parritt Chairman - Remuneration Committee 17 April 2009 AUDIT COMMITTEE REPORT The committee's terms of reference have been approved by the board and follow published guidelines, which are available on request from the company secretary. At the year end the audit committee comprised the two non-executive directors - H D Goldring and C A Parritt, both Chartered Accountants. The audit committee's prime tasks are to: â€¢ review the scope of external audit, to receive regular reports from Baker Tilly UK Audit LLP and to review the half-yearly and annual accounts before they are presented to the board, focusing in particular on accounting policies and areas of management judgement and estimation; â€¢ monitor the controls which are in force to ensure the integrity of the information reported to the shareholders; â€¢ act as a forum for discussion of internal control issues and contribute to the board's review of the effectiveness of the group's internal control and risk management systems and processes; â€¢ consider once a year the need for an internal audit function; â€¢ advise the board on the appointment of external auditors, the rotation of the audit partner every five years and on their remuneration for both audit and non-audit work; discuss the nature and scope of their audit work and undertake a formal assessment of the auditors' independence each year, which includes: i) a review of non-audit services provided to the group and related fees; ii) discussion with the auditors of their written report detailing all relationships with the company and any other parties that could affect independence or the perception of independence; iii) a review of the auditors' own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner; and iv) obtaining a written confirmation from the auditors that, in their professional judgement, they are independent. Meetings The committee meets at least twice prior to the publication of the annual results and discusses and considers the half year results at a board meeting and approves them with a committee of the board prior to their release. The audit committee meetings are attended by the external audit partner, chief executive, finance director and company secretary. Prior to monthly board meetings the members of the committee meet on an informal basis to discuss any relevant matters which may have arisen. Additional formal meetings may be held as necessary. During the past year the committee: â€¢ met with the external auditors, and discussed their reports to the audit committee. â€¢ approved the publication of annual and half year financial results. â€¢ considered and approved the annual review of internal controls. â€¢ decided that there was no current need for an internal audit function. â€¢ agreed the independence of the auditors and approved their fees for both audit and non-audit services as set out in note 2 to the financial statements. â€¢ the chairman of the audit committee had a separate meeting with the external audit partner. External Auditors Baker Tilly UK Audit LLP held office throughout the period under review. In the United Kingdom London & Associated Properties PLC provides extensive administration and accounting services to Bisichi Mining PLC, which has its own audit committee and employs PKF (UK) LLP, a separate and independent firm of registered auditors. C A Parritt Chairman - Audit Committee 17 April 2009 INDEPENDENT AUDITOR'S REPORT to the members of London & Associated Properties PLC We have audited the group and parent company financial statements on pages 33 to 60. We have also audited the information in the Directors' Remuneration Report that is described as having been audited. This report is made solely to the company's members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report, and the group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union ("EU"), and for preparing the parent company financial statements and the Directors' Remuneration Report in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Directors' Responsibility Statement. Our responsibility is to audit the financial statements and the part of the Directors' Remuneration Report to be audited in accordance with relevant legal and regulatory requirements, and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and whether, in addition, the group financial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements. The information given in the Directors' Report includes that specific information presented in the Chairman's Statement, Chief Executive's Report and the Finance Director's Report that is cross referenced from the Business Review section of the Directors' Report. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We review whether the Corporate Governance Statement reflects the company's compliance with the nine provisions of the 2006 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group's corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors' Report, the unaudited part of the Directors' Remuneration Report, the Chairman's Statement, the Chief Executive's Report, the Finance Director's Report and the Corporate Governance Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors' Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors' Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors' Remuneration Report to be audited. Opinion In our opinion: - the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2008 and of its loss for the year then ended; - the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; - the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the parent company's affairs as at 31 December 2008; - the parent company financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and - the information given in the Directors' Report is consistent with the financial statements. Emphasis of matter Without qualifying our opinion we draw attention to notes 18 and 26.8 to the financial statements concerning the fair values of the hedging arrangements entered into by the group and the company. Differences exist between the directors'valuations and those of the counterparty to the hedging instruments. As indicated in the notes, considerable volatility exists in these valuations as demonstrated by the marked reduction in the liabilities since the year end and it is not the group's or company's intention to crystallise the instruments. Baker Tilly UKâ€ˆAudit LLP Registered Auditor Chartered Accountants 2 Bloomsbury Street London WC1B 3ST 20 April 2009 DIRECTORS' RESPONSIBILITY STATEMENT The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. UK Company law requires the directors to prepare Group and Company Financial Statements for each financial year. Under that law the directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU and have elected to prepare the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. The company financial statements are required by law to give a true and fair view of the state of affairs of the company. In preparing each of the group and company financial statements, the directors are required to: a. select suitable accounting policies and then apply them consistently; b. make judgements and estimates that are reasonable and prudent; c. for the group financial statements, state whether they have been prepared in accordance with IFRSs adopted by the EU; and for the company financial statements state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the company financial statements; d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the requirements of the Companies Act 1985. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The directors confirm, to the best of their knowledge: (a) that the financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and of the group taken as a whole; and (b) the management report included within the Directors' Report includes a fair review of the development and performance of the business and the position of the company and the group taken as a whole, together with a description of the principal risks and uncertainties that they face. valuers' certificates To the Directors of London & Associated Properties PLC In accordance with your instructions we have carried out a valuation of the freehold and leasehold property interests held as at 31 December 2008 by the company as detailed in our Valuation Report dated 27 January 2009. Having regard to the foregoing, we are of the opinion that the open market value as at 31 December 2008 of these interests was: Â£'000 Freehold 93,965 Leasehold 120,890 214,855 27 Soho Square, London W1D 3AY Allsop LLP 27 January 2009 Property Consultants To the Directors of London & Associated Properties PLC In accordance with your instructions we have carried out a valuation of the freehold property interests held as at 31 December 2008 by the company as detailed in our Valuation Report dated 11 February 2009. Having regard to the foregoing, we are of the opinion that the open market value as at 31 December 2008 of these interests was: Â£'000 Freehold 3,677 Capitol House, Russell Street, Atisreal Limited Leeds LS1 5SP Chartered Surveyors and 11 February 2009 International Real Estate Consultants Consolidated income statement for the year ended 31 December 2008 2008 2007 Notes Â£'000 Â£'000 Gross rental income Group and share of joint ventures 16,775 14,260 Less: joint ventures - share of rental (272) (1,228) income Revenue 1 16,503 13,032 Direct property expenses (3,137) (2,481) Overheads (4,408) (4,974) Property overheads 1 (7,545) (7,455) Net rental income 1 8,958 5,577 Listed investments held for trading 3 298 144 Costs of evaluation 6 - (339) Goodwill impairment 6 - (173) - (512) Profit on sale of investment properties 897 2,295 Net decrease on revaluation of investment (33,125) (25,208) properties Net decrease in value of investments held (1,530) (16) for trading Operating loss 1 (24,502) (17,720) Share of (loss)/profit of joint ventures 11 (588) 1,572 after tax Share of profit/(loss) of associate after 12 172 (448) tax Loss before interest and taxation (24,918) (16,596) Interest rate derivatives 18 (21,063) - Finance income 5 681 1,583 Finance expenses 5 (11,966) (8,874) Loss before taxation (57,266) (23,887) Income tax 7 9,812 11,384 Loss for the yearattributable to the (47,454) (12,503) equity shareholders of the company Basic loss per share 9 (62.30)p (16.40)p Diluted loss per share 9 (62.30)p (16.40)p The revenue and operating result for the year is derived from continuing operations in the United Kingdom. consolidated balance sheet at 31 December 2008 2008 2007 Notes Â£'000 Â£'000 Non-current assets Market value of properties attributable to 218,532 248,076 group Present value of head leases 27,238 31,671 Property 10 245,770 279,747 Plant and equipment 10 917 881 Investments in joint ventures 11 1,793 1,881 Investments in associated company 12 6,567 6,401 Held to maturity investments 13 1,805 5 256,852 288,915 Current assets Trade and other receivables 14 3,974 7,214 Financial assets-investments held for 15 2,330 5,113 trading Cash and cash equivalents 8,191 16,464 14,495 28,791 Total assets 271,347 317,706 Current liabilities Trade and other payables 16 (11,268) (12,988) Financial liabilities - borrowings 17 (7,277) (6,250) Current tax liabilities (2,417) (1,869) (20,962) (21,107) Non-current liabilities Financial liabilities-borrowings 17 (160,417) (162,866) Interest rate derivatives 18 (19,616) - Present value of head leases on properties (27,238) (31,671) Deferred tax 19 (2,808) (13,071) (210,079) (207,608) Total liabilities (231,041) (228,715) Net assets 40,306 88,991 Equity attributable to the equity shareholders of the company Share capital 20 8,232 8,232 Share premium account 5,236 5,236 Translation reserve in associate (504) (530) Fair value reserve - interest rate - 1,001 derivatives Capital redemption reserve 47 47 Retained earnings (excluding treasury 33,532 81,554 shares) Treasury shares 20 (6,237) (6,549) Retained earnings 27,295 75,005 Total shareholders' equity 40,306 88,991 Net assets per share 9 52.73p 116.86p Diluted net assets per share 9 52.70p 116.73p These financial statements were approved by the board of directors and authorised for issue on 17 April 2009 and signed on its behalf by: M A Heller R J Corry Director Director Consolidated statement of changes in shareholders' equity for the year ended 31 December 2008 Retained earnings Retained Earnings Translation Fair Capital Treasury excluding Share Share reserves value redemption treasury Total capital premium reserve* reserve shares shares equity Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 January 2007 8,232 5,236 (517) - 47 (6,533) 95,395 101,860 Fair value of interest - - - 1,388 - - 1,388 derivatives Deferred taxation on - - - (387) - - - (387) interest derivative Currency translation in - - (13) - - - - (13) associate Net (losses)/gains - - (13) 1,001 - - - 988 recognised directly in equity Loss for year - - - - - - (12,503) (12,503) Total recognised (expense)/ - - - - - - (12,503) (12,503) income Equity share options in - - - - - - 99 99 associate Acquisition of own shares - - - - - (278) - (278) Disposal of own shares - - - - - 262 - 262 Loss on disposal of own - - - - - - (27) (27) shares Dividend - - - - - - (1,410) (1,410) Balance at 31 December 2007 8,232 5,236 (530) 1,001 47 (6,549) 81,554 88,991 Reclassification of fair - - - (1,001) - - 1,001 - value of interest derivatives Currency translation in - - 26 - - - - 26 associate Net gains recognised - - 26 (1,001) - - 1,001 26 directly in equity Loss for year - - - - - - (47,454) (47,454) Total recognised (expense)/ - - - - - - (47,454) (47,454) income Equity share options in - - - - - - 99 99 associate Disposal of own shares - - - - - 312 - 312 Loss on disposal of own - - - - - - (183) (183) shares Dividend - - - - - - (1,485) (1,485) Balance at 31 December 2008 8,232 5,236 (504) - 47 (6,237) 33,532 40,306 * Interest rate derivatives All the above are attributable to the equity shareholders of the parent. Consolidated cash flow statement for the year ended 31 December 2008 2008 2007 Â£'000 Â£'000 Operating activities Loss before interest and taxation (24,918) (16,596) Depreciation 200 201 Goodwill impairment - 173 Costs of evaluation - 339 - 512 (Profit)/loss on disposal of non-current assets (2) 9 Profit on sale of investment properties (897) (2,295) Net decrease on revaluation of investment properties 33,125 25,208 Share of loss/(profit) of joint ventures and associate after 416 (1,124) tax Net decrease in value of investments held for trading 1,530 16 Decrease/(increase) in net current assets 2,566 (1,966) Cash generated from operations 12,020 3,965 Income tax repaid/(paid) 104 (3,420) Cash inflows from operating activities 12,124 545 Investing activities Investment in shares and loan stock in joint ventures (2,300) - Acquisition of subsidiary investments (net of cash acquired) - (11,097) Costs on evaluation of subsidiary investments - (339) Property acquisitions and improvements (19,788) (22,455) Sale of properties 16,229 43,804 Purchase of office equipment and motor cars (294) (104) Sale of office equipment and motor cars 61 29 Interest received 681 1,916 Dividends received 131 3,343 Cash (outflows)/inflows from investing activities (5,280) 15,097 Financing activities Purchase of treasury shares - (278) Sale of treasury shares 129 235 Equity dividends paid (1,485) (1,410) Interest paid (12,210) (9,303) Repayment of short term loan from joint ventures (7) (163) Repayment of medium term bank loan (2,571) (3,371) Cash outflows from financing activities (16,144) (14,290) Net (decrease)/increase in cash and cash equivalents (9,300) 1,352 Cash and cash equivalents at beginning of year 10,214 8,862 Cash and cash equivalents at end of year 914 10,214 Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise the following balance sheet amounts: 2008 2007 Â£'000 Â£'000 Cash and cash equivalents (before bank overdrafts) 8,191 16,464 Bank overdrafts (7,277) (6,250) Cash and cash equivalents at end of year 914 10,214 Â£9.5million of cash deposits at 31 December 2007 was charged as security to the Prudential. This was released in 2008. Group accounting policies The following are the principal group accounting policies: Basis of accounting The group financial statements for the year ended 31 December 2008 are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The company has elected to prepare the parent company's financial statements in accordance with UK GAAP, as applied in accordance with the provisions of the Companies Act 1985 and these are presented in note 26. The financial statements are prepared under the historical cost convention, except for the revaluation of freehold and leasehold properties and financial assets held for trading and fair value of interest derivatives. The group financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand pounds (Â£'000) except when otherwise stated. The group financial statements have been prepared on a going concern basis. Further details of which are contained in the Directors' Report. Key judgements and estimates The preparation of the financial statements requires management to make assumptions and estimates that may affect the reported amounts of assets and liabilities and the reported income and expenses, further details of which are set out below. Although management believes that the assumptions and estimates used are reasonable, the actual results may differ from those estimates. International Accounting Standards (IAS/IFRS) At the date of approval of these financial statements, the following new Standards and interpretations which have not been applied in these Financial statements, were in issue but not yet effective: IAS 1 (amended) Presentation of financial statements IAS 23 (amended ) Borrowing costs. IAS 27 (revised) Consolidated and separate financial statements. IAS 39 (amended) Eligible hedged items. IFRS 1 (amended) Cost of investment in a subsidiary, jointly controlled entity or associate. IFRS 2 (amended) Share-based payments - vesting conditions and cancellations. IFRS 3 (revised) Business combinations. IFRS 8 Operating segments. IFRIC 15 Agreements for the construction of real estate. IFRIC 17 Distributions of non-cash assets to owners. The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group. Basis of consolidation The group accounts incorporate the accounts of London & Associated Properties PLC and all of its subsidiary undertakings, together with the group's share of the results and net assets of its joint ventures and associate. Subsidiaries Subsidiaries are those entities controlled by the group. Control is assumed when the group has the power to govern the financial and operating policies of an entity or business and to economically benefit from its activities. Subsidiaries acquired during the year are consolidated using the acquisition method. Their results are incorporated from the date that control passes. All intra group transactions, balances, income and expenses are eliminated on consolidation. Details of group subsidiary companies are set out in note 26.4. Joint ventures Investments in joint ventures, being those entities over whose activities the group has joint control, as established by contractual agreement, include the appropriate share of the results and net assets of those undertakings. Associates Undertakings in which the group has a participating interest of not less than 20% of the voting capital and over which it has the power to exert significant influence are defined as associated undertakings. The financial statements include the appropriate share of the results and reserves of those undertakings. Goodwill Goodwill arising on acquisition is recognised as an intangible asset and initially measured at cost, being the excess of the cost of the acquired entity over the group's interest in the fair value of the assets and liabilities acquired. Goodwill is carried at cost less accumulated impairment losses. Goodwill arising from the difference in the calculation of deferred tax for accounting purposes and fair value in negotiations is judged not to be an asset and is accordingly impaired on completion of the relevant acquisition. Revenue Rental income Rental income arises from operating leases granted to tenants. An operating lease is a lease other than a finance lease. A finance lease is one whereby substantially all the risks and rewards of ownership are passed to the lessee. Rental income is recognised in the group income statement on a straight-line basis over the term of the lease. This includes the effect of lease incentives to tenants, which are normally in the form of rent free periods or capital contributions in lieu of rent free periods. For income from property leased out under a finance lease, a lease receivable asset is recognised in the balance sheet at an amount equal to the net investment in the lease, as defined in IAS 17. Minimum lease payments receivable, again as defined in IAS 17, are apportioned between finance income and the reduction of the outstanding lease receivable so as to produce a constant periodic rate of return on the remaining net investment in the lease. Contingent rents, being the difference between the rent currently receivable and the minimum lease payments, are recognised in property income in the periods in which they are receivable. Reverse surrender premiums Payments received from tenants to surrender their lease obligations are recognised immediately in the income statement. Dilapidations Dilapidations monies received from tenants in respect of their lease obligations are recognised immediately in the income statement. Other revenue Revenue in respect of listed investments held for trading represents investment dividends received and profit or loss recognised on realisation. Dividends are recognised in the income statement when the dividend is received. Property operating expenses Property operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to the income statement. Employee benefits Share based remuneration The company operates a long-term incentive plan and two share option schemes. The fair value of the conditional awards on shares granted under the long- term incentive plan and the options granted under the share option scheme are determined at the date of grant. This fair value is then expensed on a straight-line basis over the vesting period, based on an estimate of the number of shares that will eventually vest. At each reporting date, the fair value of the non-market based performance criteria of the long-term incentive plan is recalculated and the expense is revised. In respect of the share option scheme, the fair value of options granted is calculated using a binomial method. Pensions The company operates a defined contribution pension scheme. The contributions payable to the scheme are expensed in the period to which they relate. Financial instruments Investments Held to maturity investments are stated at amortised cost using the effective interest rate method. Investments held for trading are included in current assets at fair value. For listed investments, fair value is the bid market listed value at the balance sheet date. Realised and unrealised gains or losses arising from changes in fair value are included in the income statement of the period in which they arise. Trade and other receivables Trade and other receivables are recognised initially at fair value. A provision for impairment of trade receivables is made when there is evidence that the group will not be able to collect all amounts due. Trade and other payables Trade and other payables are non interest bearing and are stated at their nominal value. Bank loans and overdrafts Bank loans and overdrafts are included as financial liabilities on the group balance sheet net of the unamortised discount and costs of issue. Interest payable on those facilities is expensed as a finance cost in the period to which it relates. Debenture loan The debenture loan is included as a financial liability on the balance sheet net of the unamortised costs on issue. The cost of issue is recognised in the group income statement over the life of the debenture. Interest payable to debenture holders is expensed in the period to which it relates. Finance lease liabilities Finance lease liabilities arise for those investment properties held under a leasehold interest and accounted for as investment property. The liability is calculated as the present value of the minimum lease payments, reducing in subsequent reporting periods by the apportionment of payments to the lessor. Lease payments are allocated between the liability and finance charges so as to achieve a constant financing rate. Contingent rents payable, such as rent reviews or those related to rental income, are charged as an expense in the period in which they are incurred. Interest rate derivatives The group uses derivative financial instruments to hedge the interest rate risk associated with the financing of the group's business. No trading in such financial instruments is undertaken. At each reporting date, these interest rate derivatives are recognised at their fair value to the business, being the Net Present Value of the difference between the hedged rate of interest and the rate of interest for the remaining period of the hedge. Where a derivative is designated as a hedge of the variability of a highly probable forecast transaction i.e. an interest payment, the element of the gain or loss on the derivative that is an effective hedge is recognised directly in equity. When the forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognised directly in equity are reclassified into the income statement in the same period or periods during which the asset acquired or liability assumed affects the income statement i.e. when interest income or expense is recognised. The gain or loss arising from any adjustment to the fair value to the business calculation is recognised immediately in the group income statement when the criteria set out in IAS 32 allowing the movements to be shown in equity have not been met. Treasury shares When the group's own equity instruments are repurchased, consideration paid is deducted from equity as treasury shares until they are cancelled. When such shares are subsequently sold or reissued, any consideration received is included in equity. Investment properties Valuation Investment properties are those that are held either to earn rental income or for capital appreciation or both, including those that are undergoing redevelopment. They are reported on the group balance sheet at fair value, being the amount for which an investment property could be exchanged between knowledgeable and willing parties in an arm's length transaction. The valuation is undertaken by independent valuers who hold recognised and relevant professional qualifications and have recent experience in the locations and categories of properties being valued. Surpluses or deficits resulting from changes in the fair value of investment property are reported in the group income statement in the period in which they arise. Capital expenditure Investment properties are measured initially at cost, including related transaction costs. Additions to capital expenditure, being costs of a capital nature, directly attributable to the redevelopment or refurbishment of an investment property, up to the point of it being completed for its intended use, are capitalised in the carrying value of that property. The redevelopment of an existing investment property will remain an investment property measured at fair value and is not reclassified. Capitalised interest is calculated with reference to the actual rate payable on borrowings for development purposes, or for that part of the development costs financed out of borrowings the capitalised interest is calculated on the basis of the average rate of interest paid on the relevant debt outstanding. Disposal The disposal of investment properties is accounted for on completion of contract. On disposal, any gain or loss is calculated as the difference between the net disposal proceeds and the valuation at the last year end plus subsequent capitalised expenditure in the period. Depreciation and amortisation In applying the fair value model to the measurement of investment properties, depreciation and amortisation are not provided in respect of investment properties. Plant and equipment Other non-current assets, comprising motor vehicles and office equipment, are depreciated at a rate of between 10% and 33% per annum which is calculated to write off the cost, less estimated residual value of the assets, on a straight line basis over their expected useful lives. Income taxes The charge for current taxation is based on the results for the year as adjusted for disallowed or non-assessable items. Tax payable upon realisation of revaluation gains recognised in prior periods is recorded as a current tax charge with a release of the associated deferred tax. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the tax computations, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. In respect of the deferred tax on the revaluation surplus, this is calculated on the basis of the chargeable gains that would crystallise on the sale of the investment portfolio as at the reporting date. The calculation takes account of indexation on the historic cost of properties and any available capital losses. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the group income statement, except when it relates to items charged or credited directly to equity, in which case it is also dealt with in equity. Cash and cash equivalents Cash comprises cash in hand and on demand deposits, net of bank overdrafts. Cash equivalents comprise short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and original maturities of three months or less. 1. Segmental analysis Business segments 2008 2007 Property Listed Total Property Listed Total investments investments Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Rental income 16,503 - 16,503 13,032 - 13,032 Property overheads (7,545) - (7,545) (7,455) - (7,455) Net rental income 8,958 - 8,958 5,577 - 5,577 Other income - 298 298 - 144 144 Profit on sale of 897 - 897 2,295 - 2,295 investment properties Net decrease on (33,125) - (33,125) (25,208) - (25,208) revaluation of investment properties Net decrease on - (1,530) (1,530) - (16) (16) revaluation of investments held for trading Segment result (23,270) (1,232) (24,502) (17,336) 128 (17,208) Costs of evaluation - - - (339) - (339) Goodwill impairment - - - (173) - (173) Operating (loss)/profit (23,270) (1,232) (24,502) (17,848) 128 (17,720) Total assets (excluding 258,857 2,330 261,187 304,311 5,113 309,424 investments in associate and joint ventures) Total liabilities (60,930) - (60,930) (57,730) - (57,730) (excluding borrowings and current tax) Borrowings (167,694) - (167,694) (169,116) - (169,116) Net assets 30,233 2,330 32,563 77,465 5,113 82,578 Current tax liabilities: (2,417) (1,869) non segmental Investments in joint 3,593 1,881 ventures: non segmental (note 11) Investments in 6,567 6,401 associate: non segmental (note 12) Net assets as per 40,306 88,991 balance sheet Other segment items: Depreciation 200 - 200 201 - 201 Capital expenditure 19,208 - 19,208 121,952 - 121,952 Rental income Dragon Group Property Analytical Total Retail Share 2007 Ventures 2008 Properties Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Rental income 16,503 341 203 17,047 16,775 14,260 Direct property expenses (3,137) (12) (26) (3,175) (3,156) (2,840) Overheads (4,408) (262) (48) (4,718) (4,563) (5,128) 8,958 67 129 9,154 9,056 6,292 Less: attributable to joint (98) (715) ventures Net rental income 8,958 5,577 Geographical segments At net rental income level, the Group operates in the United Kingdom only. The directors consider it to be the only geographical segment of the business. 2. Loss before taxation 2008 2007 Â£'000 Â£'000 Loss before taxation is arrived at after charging/(crediting): Staff costs (note 22) 2,829 3,620 Depreciation on tangible fixed assets - owned assets 200 201 Operating lease rentals - land and buildings 373 334 (Profit)/loss on disposal of motor vehicles and office equipment (2) 9 Amounts payable to the auditors in respect of both audit and non-audit services Audit services: Statutory - company and consolidation 82 78 - subsidiaries 65 47 Further assurance services 11 12 Services related to corporate finance - 55 Other services 8 28 166 220 Staff costs and depreciation of tangible fixed assets are included in overheads. 3. Listed investments held for trading 2008 2007 Â£'000 Â£'000 Investment sales 1,603 628 Dividends receivable 141 164 1,744 792 Cost of sales (1,421) (623) 323 169 Attributable overheads (25) (25) 298 144 4. Directors' emoluments 2008 2007 Â£'000 Â£'000 Emoluments 1,282 1,844 Defined contribution pension scheme contributions 215 271 1,497 2,115 Details of directors' emoluments and share options are set out in the remuneration report. 5. Finance costs 2008 2007 Â£'000 Â£'000 Finance income 681 1,583 Finance expenses Interest on bank loans and overdrafts (9,575) (6,592) Interest on other loans (2,178) (3,138) Hedging 1,614 509 Interest on obligations under finance leases (1,989) (798) Total borrowing costs (12,128) (10,019) Amounts included in the cost of qualifying assets 162 1,145 (11,966) (8,874) (11,285) (7,291) Â£162,000 interest payable (2007: Â£1,145,000) has been transferred to the cost of investment properties (Note 10). The amount transferred represents the cost of funds forming part of the group's borrowings which were used in financing major capital projects. 6. Exceptional items 2008 2007 Â£'000 Â£'000 Costs of evaluation - 339 Goodwill impairment - 173 - 512 The costs of evaluation represent fees incurred by the Company, prior to the decision being taken that the company should acquire the 50% interest in the issued share capital of Analytical Properties Holdings Limited (Analytical Group) not already owned by the Company. Goodwill impairment arose on the acquisition of the Analytical Group on 25 September 2007. This goodwill arose primarily as a result of recognising the deferred tax which would arise if the properties within Analytical Group were realised at the fair valuation applied on acquisition. This goodwill is immediately written off to the income statement. The company also acquired Â£1,829,000 of B loan stock of Analytical Group at par value. 7. Income tax 2008 2007 Â£'000 Â£'000 Current tax: Corporation tax on loss of the period 299 1,700 Adjustments in respect of previous periods 152 21 Total current tax 451 1,721 Deferred tax Origination and reversal of timing differences 2,269 711 Revaluation of investment properties (7,726) (12,962) Revaluation of investments held for trading - (587) Accelerated capital allowances 397 (267) Fair value of interest derivatives (5,898) - Adjustments in respect of previous periods 695 - Total deferred tax (note 19) (10,263) (13,105) Tax on loss on ordinary activities (9,812) (11,384) Factors affecting tax charge for the year The corporation tax assessed for the year is different from that at the standard rate of corporation tax in the United Kingdom of 28.5 per cent (2007: 30 per cent). The differences are explained below: Loss on ordinary activities before taxation (57,266) (23,887) Taxation on ordinary activities at 28.5 per cent (2007: 30%) (16,321) (7,166) Effects of: Expenses not deductible for tax purposes 8 30 Other differences 5,243 (3,166) Joint ventures and associate 119 (150) Deferred tax rate adjustment 292 (953) Adjustment in respect of prior years 847 21 Tax credit for the period (9,812) (11,384) The main component of other differences in the reconciliation relates to indexation allowance of Â£4.8 million. Factors that may affect future tax charges: Based on current capital expenditure plans, the group expects to continue to be able to claim capital allowances in excess of depreciation in future years, but at a slightly lower level than in the current year. Deferred tax provision has been made for gains on revaluing investment properties. At present it is not envisaged that any tax will become payable in the foreseeable future. 8. Dividend 2008 2007 Per Â£'000 Per Â£'000 share share Dividends paid during the year relating to the 1.95p 1,485 1.85p 1,410 prior period Dividends to be paid: Interim dividend for 2008 paid on 23 January 0.75p 571 0.65p 497 2009 Proposed equivalent final dividend for 2008 1.20p 933 1.30p 988 (0.4p in cash and 0.8p in ordinary shares) 1.95p 1,504 1.95p 1,485 The proposed final dividend will be payable on 3 July 2009 to shareholders registered at the close of business on 5 June 2009. 9. Losses per share and net assets per share Losses per share have been calculated as follows: 2008 2007 Loss for the year for the purposes of basic and diluted losses (47,454) (12,503) per share (Â£'000) Weighted average number of ordinary shares in issue for the 76,172 76,230 purpose of basic losses per share ('000) Basic losses per share (62.30p) (16.40p) Weighted average number of ordinary shares in issue for the 76,172 76,230 purpose of diluted losses per share ('000) Fully diluted losses per share (62.30p) (16.40p) Weighted average number of shares in issue is calculated after excluding treasury shares of 5,873,865 (2007: 6,167,545). On the basis that the Group has made a loss for the year, there is no dilutive effect of the outstanding options. Net assets per share have been calculated as follows: Shares Shares Net Net Net Net in in assets assets Assets Assets per per issue issue share share 2008 2007 2008 2007 2008 2007 Â£'000 Â£'000 `000 `000 Pence Pence Basic At 31 December 40,306 88,991 76,443 76,149 52.73 116.86 Dilution adjustments for shares subject to option agreements: Issue of outstanding share 40 40 120 120 options Diluted 40,346 89,031 76,563 76,269 52.70 116.73 10. Property and plant and equipment Freehold Investment Total Office Properties equipment Leasehold and motor over 50 vehicles years Â£'000 Â£'000 Â£'000 Â£'000 Cost or valuation at 1 116,206 163,541 279,747 1,554 January 2008 Additions 15,438 3,476 18,914 294 Disposals (15,333) - (15,333) (166) Decrease in present value - (4,433) (4,433) - of head leases Decrease on revaluation (21,039) (12,086) (33,125) - Cost or valuation at 31 95,272 150,498 245,770 1,682 December 2008 Representing assets stated - at: Valuation 95,272 123,260 218,532 Present value of head - 27,238 27,238 - leases Cost - - - 1,682 95,272 150,498 245,770 1,682 Depreciation at 1 January - - - 673 2008 Charge for the year - - - 200 Disposals - - - (108) Depreciation at 31 December - - - 765 2008 Net book value at 1 January 116,206 163,541 279,747 881 2008 Net book value at 31 95,272 150,498 245,770 917 December 2008 Freehold Investment Total Office Properties equipment Leasehold and motor over 50 vehicles years Â£'000 Â£'000 Â£'000 Â£'000 Cost or valuation at 1 January 109,102 93,026 202,128 1,633 2007 Additions 16,309 7,299 23,608 87 Additions through business 4,875 93,382 98,257 - combinations Present value of head leases - 25,771 25,771 - through business combination Disposals (4,835) (36,534) (41,369) (166) Decrease in present value of - (3,440) (3,440) - head leases Decrease on revaluation (9,245) (15,963) (25,208) - Cost or valuation at 31 116,206 163,541 279,747 1,554 December 2007 Representing assets stated at: 116,206 131,870 248,076 - Valuation: Present value of head leases - 31,671 31,671 - Cost - - - 1,554 116,206 163,541 279,747 1,554 Depreciation at 1 January 2007 - - - 600 Charge for the year - - - 201 Disposals - - - (128) Depreciation at 31 December - - - 673 2007 Net book value at 1 January 109,102 93,026 202,128 1,033 2007 Net book value at 31 December 116,206 163,541 279,747 881 2007 The leasehold over fifty years and freehold properties, excluding the present value of head leases, were valued as at 31 December 2008 by external professional firms of chartered surveyors. The valuations were made at open market value. 2008 2007 Â£'000 Â£'000 Allsop LLP, Chartered Surveyors 214,855 243,205 Atisreal Limited, Chartered Surveyors 3,677 4,839 Directors' valuation - 32 218,532 248,076 Add: Present value of headleases 27,238 31,671 245,770 279,747 The historical cost of investment properties, including total capitalised interest of Â£6,051,000 (2007: Â£5,889,000) was as follows: 2008 2008 2007 2007 Freehold Leasehold Freehold Leasehold Over 50 Over 50 years years Â£'000 Â£'000 Â£'000 Â£'000 Cost at 1 January 94,957 127,975 77,402 46,623 Additions (including through 15,438 3,476 21,184 100,681 business combination) Disposals (14,087) - (3,629) (19,329) Cost at 31 December 96,308 131,451 94,957 127,975 11. Investment in joint ventures 2008 2007 Â£'000 Â£'000 Group share of: Turnover 272 1,228 (Loss)/profit before tax (684) 346 Taxation 96 1,226 (Loss)/profit after tax (588) 1,572 Non-current assets 6,712 1,746 Current assets 1,874 1,578 Current liabilities (1,485) (75) Non-current liabilities (5,308) (1,368) Net assets 1,793 1,881 Analytical Ventures Limited (Analytical Ventures) - unlisted property investment company. During the year a new joint venture was set up with the Bank of Scotland. The company owns 50 per cent of the issued share capital and 50 per cent of the issued loan stock. The remaining 50 per cent is owned by the Bank of Scotland. Analytical Ventures is incorporated and operates in England and Wales and has issued share capital of 7,558,000 ordinary shares. Analytical Ventures is managed by a board of directors with neither party having overall control. Dragon Retail Properties Limited (Dragon) - unlisted property trading and investment company. The company owns 50 per cent of the issued share capital of Dragon Retail Properties Limited. The remaining 50 per cent is owned by Bisichi Mining PLC. Dragon is incorporated and operates in England and Wales and has issued share capital of 500,000 ordinary shares of Â£1 each (2007:500,000 ordinary shares of Â£1 each). Dragon is managed by a board of directors with neither party having overall control. (2007: Analytical Properties Holdings Limited (Analytical) - unlisted property investment company. The company owned 50 per cent of the issued share capital and 50 per cent of the issued 7.3 per cent loan stock of Analytical Properties Holdings Limited. The remaining 50 per cent was owned by the Bank of Scotland. Analytical is incorporated and operates in England and Wales and has issued share capital of 100 ordinary shares of Â£1 each (2006:7,558,000 ordinary shares of Â£1 each). Analytical was managed by a board of directors with neither party having overall control. On 25 September 2007 the Company acquired Analytical's remaining 50 per cent issued share capital and has been treated as a wholly owned subsidiary from that date.) Shares in joint ventures: 2008 2007 Â£'000 Â£'000 At 1 January 1,881 15,263 Share of (loss)/profit after tax (588) 1,572 Dividend received - (3,234) Investment valuation 500 - Transferred to subsidiary undertaking - (11,720) (88) (13,882) At 31 December 1,793 1,881 12. Investments in associated company 2008 2007 Â£'000 Â£'000 Bisichi Mining PLC - listed mining and property investment company Group share of: Turnover 10,828 6,958 Profit/(loss) before tax 929 (191) Taxation (757) (257) Profit/(loss) after tax 172 (448) Non-current assets 9,573 9,937 Current assets 4,574 2,673 Current liabilities (5,929) (3,527) Non-current liabilities (1,651) (2,682) Net assets 6,567 6,401 2008 2007 Â£'000 Â£'000 Shares in associate: At 1 January 6,401 6,872 Share of profit/(loss) after tax 172 (448) Equity share options 99 99 Currency translation (26) (13) Dividend received (131) (109) 166 (471) At 31 December 6,567 6,401 The company owns 42 per cent (2007: 42 per cent) of the issued share capital of Bisichi Mining PLC (Bisichi), a company registered in England and Wales. Bisichi has an issued share capital of 10,451,506 ordinary shares of 10p each, and its principal countries of operation are the United Kingdom (property investment) and South Africa (coal mining). Bisichi is an associated undertaking by virtue that London & Associated Properties PLC has a participating interest. Bisichi has an independent board of directors which controls its operating and financial policies. The market (bid) value of this investment at 31 December 2008 was Â£6,087,000 (2007: Â£11,532,000). 13. Held to maturity investments 2008 Unlisted Loan 2007 Unlisted Loan Total Stock Shares Stock in Total Shares joint in joint ventures ventures Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cost At 1 January 5 5 - 1,834 5 1,829 Transferring to subsidiary - - - (1,829) - (1,829) undertaking Loan stock 1,800 - 1,800 - - - At 31 December 1,805 5 1,800 5 5 - 14. Trade and other receivables 2008 2007 Â£'000 Â£'000 Trade receivables 966 1,533 Amounts due from associate and joint ventures 148 191 Interest rate swap - cash flow hedges - 1,447 Other receivables 474 2,335 Prepayments and accrued income 2,386 1,708 3,974 7,214 The directors consider that the carrying amount of trade and other receivables approximates to their fair value. 15. Investments held for trading 2008 2007 Â£'000 Â£'000 Market bid value of the listed investment 2,330 5,113 portfolio Unrealised (deficit)/excess of market value (490) 1,812 over cost Listed investment portfolio at cost 2,820 3,301 All investments are listed on the London Stock Exchange. 16. Trade and other payables 2008 2007 Â£'000 Â£'000 Trade payables 1,070 927 Amounts owed to joint ventures 1,454 1,437 Other taxation and social security costs 303 344 Other payables 1,124 2,329 Accruals and deferred income 7,317 7,951 11,268 12,988 The directors consider that the carrying amount of trade and other 17. Borrowings Current borrowings - amounts falling due within one year 2008 2007 Â£'000 Â£'000 Bank overdrafts (unsecured) 7,277 6,250 Non-current borrowings - amounts falling due after more than one year Term borrowings Debenture stocks: Â£5 million First Mortgage Debenture Stock 2013 at 11.3 per 5,000 5,000 cent Â£1.7 million First Mortgage Debenture Stock 2016 at 8.67 1,700 1,700 per cent Â£5 million First Mortgage Debenture Stock 2018 at 11.6 per 5,000 5,000 cent Â£10 million First Mortgage Debenture Stock 2022 at 8.109 9,770 9,753 per cent* 21,470 21,453 Term bank loans: Â£90 million revolving credit facility repayable in 2011* 69,184 71,694 Â£70 million term bank loan repayable in 2014* 69,763 69,719 138,947 141,413 160,417 162,866 *The Â£10 million debenture and bank loans are shown after deduction of outstanding amortised issue costs. Interest payable on the term bank loans is variable being based upon the London inter bank offered rate (LIBOR) plus margin. First Mortgage Debenture Stocks 2013, 2016, 2018 and 2022, the long term Â£90 million bank revolving credit facility repayable in September 2011 and the long term Â£70 million term bank loan repayable in November 2014 are secured on specific freehold and leasehold properties which are included in the financial statements at a value of Â£212.6 million. The bank loans and debentures are secured by way of a first charge over the investment properties in the UK. The Group's objectives when managing capital are: - To safeguard the group's ability to continue as a going concern, so that it may provide returns for shareholders and benefits for other stakeholders; and - To provide adequate returns to shareholders by ensuring returns are commensurate with the risk. 18. Financial instruments Treasury policy The Group enters into derivative transactions such as interest rate swaps and forward exchange contracts in order to help manage the financial risks arising from the Group's activities. The main risks arising from the Group's financing structure are interest rate risk, liquidity risk and market price risk. The policies for managing each of these risks and the principal effects of these policies on the results are summarised below. Interest rate risk Treasury activities take place under procedures and policies approved and monitored by the Board to minimise the financial risk faced by the Group. The bank loans are secured by way of a first charge on certain fixed assets. The rates of interest vary based on LIBOR in the UK. Sensitivity analysis As all term debt has been covered by hedged derivatives it is not considered that there is any material sensitivity for the group to changes in interest rates. Liquidity risk The group's policy is to minimise refinancing risk by balancing its exposure to interest risk and to refinancing risk. In effect the group seeks to borrow for as long as possible at the lowest acceptable cost. Efficient treasury management and strict credit control minimise the costs and risks associated with this policy which ensures that funds are available to meet commitments as they fall due. Cash and cash equivalents earn interest at rates based on LIBOR in the UK. These facilities are considered adequate to meet the group's anticipated cash flow requirements for the foreseeable future. The table below analyses the group's financial liabilities into maturity groupings and also provides details of the liabilities that bear interest at fixed, floating and non-interest bearing rates. Less 2-5 Over 5 2008 than years years Total 1 year Â£'000 Â£'000 Â£'000 Â£'000 Bank overdrafts (floating) 7,277 - - 7,277 Debentures (fixed) - 5,000 16,700 21,700 Bank loans (floating)* - 69,429 70,000 139,429 Trade and other payables 11,268 - - 11,268 (non-interest) 18,545 74,429 86,700 179,674 Less 2-5 Over 5 2007 than years years Total 1 year Â£'000 Â£'000 Â£'000 Â£'000 Bank overdrafts (floating) 6,250 - - 6,250 Debentures (fixed) - - 21,700 21,700 Bank loans (floating)* - 72,000 70,000 142,000 Trade and other payables 12,988 - - 12,988 (non-interest) 19,238 72,000 91,700 182,938 The group would normally expect that sufficient cash is generated in the operating cycle to meet the contractual cash flows as disclosed above through effective cash management. *All the bank loans are fully hedged with appropriate interest derivatives. Details of all hedges are shown below. Market price risk The group is exposed to market price risk through interest rate and currency fluctuations. Credit risk At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. The group only deposits surplus cash with well-established financial institutions of high quality credit standing. Borrowing facilities At 31 December 2008 the Group was within its bank borrowing facilities and was not in breach of any of the covenants. Overdrafts are renewable annually. Term loan repayments are as set out below. Details of other financial liabilities are shown in notes 16 and 17. The group has undrawn facilities of Â£22,544,000 (2007:Â£21,000,000) as follows: 2008 2007 Â£'000 Â£'000 Overdrafts 1,973 3,000 Term facilities expiring in two to five years 20,571 18,000 22,544 21,000 Hedge profile a) There is a hedge to cover part of the Â£90 million revolving credit facility, which currently covers the full Â£69 million drawn. It consists of a 20 year swap for Â£35 million with a 7 year call option in favour of the bank, taken out in November 2007, at 4.76 per cent and a 20 year swap for Â£40 million with a 7 year call option in favour of the bank, taken out in December 2007, at 4.685 per cent. b) There is a hedge to cover the Â£70 million term bank loan drawn. It consists of a 20 year swap for Â£70 million with a 7 year call option in favour of the bank, taken out in November 2007, at 4.76 per cent. At the year end the amount recognised was Â£14,146,000 deficit (2007:Â£1,001,000 surplus) being the estimated financial effect of the fair value to the business of these hedging instruments less the deferred tax thereon. The Directors have estimated the financial effect of the fair value to the business of these hedging instruments. This has been calculated as the Net Present Value of the difference between the 19 year interest rate, which was 3.73 per cent at 31 December 2008 against the rate payable under the specific hedge. This has given a liability at 31 December 2008 of Â£19,616,000 as shown in the balance sheet. The banks own initial quotations at 31 December 2008 to close each of the hedges were Â£28,010,000. Since the end of the year the long term 19 year has increased and at 7 April 2009 it was 4.12 per cent. This rate would give a fair value of Â£11,623,000, a decrease in the liability of Â£7,993,000. The banks quote to close the hedges at the same date would have been Â£21.4 million, a decrease of Â£6.6 million. It is not the company's intention to crystallise the derivatives. Under IAS 39 the hedges are not deemed to be eligible for hedge accounting, as the banks have an option to cancel the hedge in January 2015 even though this is after the expiry of the term loans and the level of the hedges closely equates to the amount of the loans outstanding. Any movement in the value of the hedges has therefore to be charged directly to the Consolidated Income Statement. Capital structure The group sets the amount of capital in proportion to risk. It ensures that the capital structure is commensurate to the economic conditions and risk characteristics to the underlying assets. In order to maintain or adjust the capital structure, the group may adjust the capital structure, vary the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The group considers its capital to include share capital, share premium, capital redemption reserve, translation reserve and retained earnings, but excluding the fair value reserve and the interest rate derivatives. Consistently with others in the industry, the group monitors its capital by its debt to equity ratio (gearing levels). This is calculated as the net debt (loans less cash and cash equivalents) as a percentage of the equity. During 2008 this increased to 266.2 per cent (2007: 173.5 per cent) which was calculated as follows: 2008 2007 Â£'000 Â£'000 Total debt 167,694 169,116 Less cash and cash equivalents (8,191) (16,464) Net debt 159,503 152,652 Total equity 59,922 87,990 266.2% 173.5% The gearing increased primarily due to the fall in the asset values in the year. All the debt, apart from the overdrafts, is at fixed rates of interest as shown in notes 17 and 18. The group does not have any externally imposed capital requirements. Financial assets Financial assets are disclosed in notes 13, 14 and 15 and above. The group's principal financial assets are bank balances and cash, trade and other receivables and investments. The group has no significant concentration of credit risk as exposure is spread over a large number of counterparties and customers. The credit risk in liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the group's management based on prior experience and the current economic environment. Financial assets maturity Cash and cash equivalents all have a maturity of less than three months. 2008 2007 Â£'000 Â£'000 Cash at bank and in hand 8,191 16,464 These funds are primarily invested in short term bank deposits maturing within one year bearing interest at the bank's variable rates. (2007: Â£9.5 million of the cash was secured against the 2013, 2016 and 2018 First Mortgage Debentures). Financial liabilities maturity Repayment of borrowings Bank loans and overdrafts: 2008 2007 Â£'000 Â£'000 Repayable on demand or within one year 7,277 6,250 Repayable between two and five years 69,184 71,694 Repayable after more than five years 69,763 69,719 146,224 147,663 Debentures: Repayable between two and five years 5,000 - Repayable in more than five years 16,470 21,453 167,694 169,116 Certain borrowing agreements contain financial and other conditions that if contravened by the group, could alter the repayment profile. Group undrawn banking facilities which expire within one year 1,973 3,000 which expire in two to five years 20,571 18,000 22,544 21,000 2008 2007 Â£'000 Â£'000 Fixed rate borrowings 21,700 21,700 Floating rate borrowings - Subject to interest rate swap 145,000 145,000 - Not hedged 1,706 3,250 168,406 169,950 Average fixed interest rate 9.69% 9.69% Weighted average swapped interest rate 5.59% 5.59% Weighted average cost of debt on overdrafts, 6.10% 6.14% bank loans and debentures Average period for which borrowing rate is fixed 10.5 years 11.5 years Average period for which borrowing rate is 18.9 years 19.9 years swapped The swapped interest rate have calls by the bank 5.9 years 6.9 years The group's floating rate debt bears interest based on LIBOR for the term bank loans and Bank base rate for the overdrafts. Total financial assets and liabilities The group's financial assets and liabilities and their fair values are as follows: 2008 Fair 2007 Fair Carrying Value Carrying value value value Â£'000 Â£'000 Â£'000 Â£'000 Cash and cash equivalents 8,191 8,191 16,464 16,464 Financial assets - 2,330 2,330 5,113 5,113 investments held for trading Other assets 3,974 3,974 5,767 5,767 Derivative (liabilities)/ (19,616) (19,616) 1,447 1,447 assets Bank overdrafts (7,277) (7,277) (6,250) (6,250) Bank loans (139,429) (138,947) (142,000) (141,413) Present value of head leases (27,238) (27,238) (31,671) (31,671) on properties Other liabilities (11,268) (11,268) (12,988) (12,988) Before debentures (190,333) (189,851) (164,118) (163,531) Fair value of debenture stocks Fair value of the Fair 2008 2007 Group's debenture Book liabilities: value Fair value Fair Value value Adjustment adjustment Â£'000 Â£'000 Â£'000 Â£'000 Debenture stocks 21,700 29,279 (7,579) (4,126) Tax at 28 per cent (2007: 30 per 2,122 1,238 cent) Post tax fair value adjustment (5,457) (2,888) Post tax fair value adjustment - (9.91)p (3.79)p basic pence per share There is no material difference in respect of other financial liabilities or any financial assets. The fair values were calculated by the directors as at 31 December 2008 and reflect the replacement value of the financial instruments used to manage the Group's exposure to adverse rate movements. The fair values of the debentures are based on the net present value at the relevant gilt interest rate of the future payments of interest on the debentures. The bank loans and overdrafts are at variable rates and there is no material difference between book values and fair values. 19. Deferred tax 2008 2007 Â£'000 Â£'000 Balance at 1 January 13,071 22,223 Deferred tax on acquisition of subsidiary - 3,566 undertakings Transfer to profit and loss account (10,263) (13,105) Transfer to reserves - 387 Balance at 31 December 2,808 13,071 2008 2007 Â£'000 Â£'000 The deferred tax balance comprises the following: Revaluation of investment properties 5,075 12,801 Accelerated capital allowances 1,852 1,306 Fair value of interest derivatives (5,493) - Short-term timing differences 1,374 208 2,808 14,315 Loss relief - (1,244) Provision at end of period 2,808 13,071 The directors consider the temporary differences arising in connection with the interests in associate and joint ventures are insignificant. There is no time limit in respect of the group tax loss relief. 20. Share capital Number of Number of 2008 2007 ordinary ordinary 10p shares 10p shares 2008 2007 Â£'000 Â£'000 Authorised: Ordinary 110,000,000 110,000,000 11,000 11,000 shares of 10p each Allotted, issued and fully 82,316,972 82,316,972 8,232 8,232 paid Less: held in Treasury (5,873,865) (6,167,545) (588) (617) (see below) "Issued share capital" for 76,443,107 76,149,427 7,644 7,615 reporting purposes The company has one class of ordinary shares which carry no right to fixed income. Treasury shares Number of ordinary 10p Cost/issue value shares Price. 2008 2007 2008 2007 excl. Date costs Â£'000 Â£'000 Shares held in Treasury at 6,167,545 6,088,355 6,549 6,533 1 January Market purchases (Oct 07 - 25,000 25 100.00p) Market purchases (Oct 07 - 49,030 51 103.51p) Issued to meet directors Nov-08 107.25p (293,680) (244,840) (312) (262) and staff bonuses (Dec 07 - 107.25p) Market purchases (Dec 07 - 250,000 202 80.00p) Shares held in Treasury at 5,873,865 6,167,545 6,237 6,549 31 December Share Option Schemes Employees' share option scheme (Approved scheme) At 31 December 2008 the following options to subscribe for ordinary shares were outstanding, issued under the terms of the Employees' Share Option Scheme: Number of shares Date of grant Option Price Normal Exercise Date 70,000 14 October 2003 39.5p 14 October 2006 to 13 October 2013 This share option scheme was approved by members in 1986, and has been approved by Her Majesty's Revenue and Customs (HMRC). There are no performance criteria for the exercise of options under the Approved scheme, as this was set up before such requirements were considered to be necessary. A summary of the shares allocated and options issued under the scheme up to 31 December 2008 is as follows: Changes during the year At 1 Options Options Options At January lapsed 2008 Exercised granted 31 December 2008 Shares issued to date 2,337,604 - - - 2,337,604 Options granted which have not been 70,000 - - - 70,000 exercised Shares allocated over which options 1,549,955 - - - 1,549,955 have not been granted Total shares allocated for issue to 3,957,559 - - - 3,957,559 employees under the scheme Non-approved Executive Share Option Scheme (Unapproved scheme) A share option scheme known as the "Non-approved Executive Share Option Scheme" which does not have HMRC approval was set up during 2000. At 31 December 2008 the following options to subscribe for ordinary shares were outstanding, issued under the terms of the scheme: Number of shares Date of Grant Option Normal Exercise Date Price 50,000 8 March 1999 25.66p 8 March 2002 - 7 March 2009 The exercise of options under the Unapproved scheme is subject to the satisfaction of objective performance conditions specified by the remuneration committee which conforms to institutional shareholder guidelines and best practice provisions. A summary of the shares allocated and options issued under the scheme up to 31 December 2008 is as follows: Changes during year Changes during the year At 1 Options Options Options At January lapsed 2008 Exercised granted 31 December 2008 Shares issued to date 400,000 - - - 400,000 Options granted which have not 50,000 - - - 50,000 been exercised Shares allocated over which 550,000 - - - 550,000 options have not been granted Total shares allocated for issue 1,000,000 - - - 1,000,000 to employees under the scheme On 12 February 2009 the 50,000 share options were exercised at the option price of 25.66 pence. 21. Related party transactions Cost Amounts Owed Cash recharged to to (by) advanced to (by) related related party (by) related party party Â£'000 Â£'000 Â£'000 Related party: Analytical Ventures Limited Current Account 37 1 - Dragon Retail Properties Limited Current account (1) (24) - Loan account (80) (1,430) 7 Bisichi Mining PLC Current account 355 (i) 147 - Directors and key management M A Heller and J A Heller 8 (ii) - - H D Goldring (Delmore Asset (17) (iii) - - Management Limited) Totals at 31 December 2008 302 (1,306) 7 Totals at 31 December 2007 294 (1,247) 162 Nature of costs recharged - (i) Management fees (ii) Property management fees (iii) Portfolio management fee. The related party companies above are the associate and joint ventures and are treated as non current asset investments - details are shown in Note 11 and 12. Analytical Ventures Limited (joint venture) Analytical Ventures Limited (Analytical Ventures) is owned 50 per cent by the company and 50 per cent by the Bank of Scotland. Dragon Retail Properties Limited (joint venture) Dragon Retail Properties Limited (Dragon) is owned 50 per cent by the company, and 50 per cent by Bisichi Mining PLC. Dragon had surplus cash which was deposited equally with London & Associated Properties PLC and Bisichi Mining PLC. The company provides office premises, property management, general management, accounting and administration services for both joint ventures. Bisichi Mining PLC (associate) The company provides office premises, property management, general management, accounting and administration services for Bisichi Mining PLC and its subsidiaries. Directors London & Associated Properties PLC provides office premises, property management, general management, accounting and administration services for a number of private property companies in which M A Heller and J A Heller have an interest. Under an agreement with M A Heller no charge is made for these services on the basis that he reduces by an equivalent amount the charge for his services to London & Associated Properties PLC. The board estimates that the value of these services, if supplied to a third party, would have been Â£ 275,000 for the year (2007: Â£275,000). The companies for which services are provided are: Barmik Properties Limited, Cawgate Limited, Clerewell Limited, Cloathgate Limited, Ken-Crav Investments Limited, London & South Yorkshire Securities Limited, Metroc Limited, Penrith Retail Limited, Shop.com Limited, South Yorkshire Property Trust Limited, Wasdon Investments Limited, Wasdon (Dover) Limited, and Wasdon (Leeds) Limited. In addition the company received management fees of Â£40,000 (2007: Â£40,000) for work done for two charitable foundations, the Michael & Morven Heller Charitable Foundation and the Simon Heller Charitable Trust. Delmore Asset Management Limited (Delmore) is a company in which H D Goldring is a majority shareholder and director. Delmore provides consultancy services to the company on an invoiced fee basis. M A Heller is a director of Bisichi Mining PLC, the associated company and received a salary of Â£75,000 (2007: Â£75,000) for services. The directors are considered to be the only key management personnel and their remunerations including employers national insurance for the year was Â£ 1,656,000 (2007: Â£2,346,000). All other disclosures required including interest in share options in respect of those directors are included within the remuneration report. 22. Employees The average number of employees, including directors, of the group during the year involved in management and administration was 43 (2007: 48). 2008 2007 Â£'000 Â£'000 Staff costs during the year were as follows: Salaries and other costs 2,113 2,773 Social security costs 280 376 Pension costs 416 471 2,829 3,620 23. Capital Commitments 2008 2007 Â£'000 Â£'000 Commitments to capital expenditure contracted for at - 6,755 the year end The group's share of capital commitments of joint ventures at the year end amounted to Â£Nil (2007: Â£Nil). 24. Commitments under operating leases Operating leases At 31 December 2008 the group has total of future minimum commitments under non-cancellable operating leases on land and buildings as follows: 2008 2007 Â£'000 Â£'000 Within one year 392 334 In the second to fifth years inclusive 1,566 1,336 After five years 325 612 2,283 2,282 Operating lease payments represent rentals payable by the group for its office premises. The leases are for an average term of 7 years and rentals are fixed for an average of one year. Minimum lease Present value of minimum payments lease payments 2008 2007 2008 2007 Â£'000 Â£'000 Â£'000 Â£'000 Present value of head leases on properties Accounts payable under finance leases: Within one year 1,874 1,847 1,874 1,847 In the second to fifth years 7,497 7,389 6,925 6,908 inclusive After five years 236,019 233,762 18,439 22,916 245,390 242,998 27,238 31,671 Future finance charges on (218,152) (211,327) - - finance leases Present value of finance 27,238 31,671 27,238 31,671 lease liabilities Finance lease liabilities are in respect of leased investment property. Many leases provide for contingent rent in addition to the rents above, usually a proportion of rental income. Finance lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. The Group leases out its investment properties to tenants under operating leases. The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows: 2008 2007 Â£'000 Â£'000 Within one year 12,842 10,691 In the second to fifth years inclusive 46,793 38,272 After five years 65,613 55,734 125,248 104,697 25. Contingent Liabilities There were no contingent liabilities at 31 December 2008 (2007: Â£Nil). 26. Company financial statements Company balance sheets at 31 December 2008 Notes 2008 2007 Â£'000 Â£'000 Fixed assets Tangible assets 26(3) 98,101 103,151 Other investments: Associated company 26(4) 358 358 Subsidiaries and others 26(4) 46,400 44,490 26(4) 46,758 44,848 144,859 147,999 Current assets Debtors 26(5) 38,970 36,555 Investments 26(6) 2,330 5,113 Bank balances 5,849 12,334 47,149 54,002 Creditors Amounts falling due within one year 26(7) (39,387) (22,158) Net current assets 7,762 31,844 Total assets less current liabilities 152,621 179,843 Creditors Amounts falling due after more than one 26(8) (100,580) (93,147) year Provisions for liabilities and charges 26(9) - (1,337) Net assets 52,041 85,359 Capital and reserves Share capital 26(10) 8,232 8,232 Share premium account 26(11) 5,236 5,236 Capital redemption reserve 26(11) 47 47 Revaluation reserve 26(11) 10,549 31,968 Fair value reserve - interest rate 26(11) - 688 derivative Treasury shares 26(10) (6,237) (6,549) Retained earnings 26(11) 34,214 45,737 Shareholders' funds 52,041 85,359 These financial statements were approved by the board of directors and authorised for issue on 17 April 2009 and signed on its behalf by: M A Heller R J Corry Director Director 26.1. Company accounting policies The following are the main accounting policies of the company: Basis of accounting The financial statements have been prepared under the historical cost convention as modified to include the revaluation of freehold and leasehold properties and fair value adjustments in respect of current asset investments and interest rate hedges and in accordance with applicable accounting standards. All accounting policies applied are consistent with those of prior periods. Investment properties are accounted for in accordance with SSAP 19, "Accounting for Investment Properties", which provides that these should not be subject to periodic depreciation charges, but should be shown at open market value. This is contrary to the Companies Act 1985 which states that, subject to any provision for depreciation or diminution in value, fixed assets are normally to be stated at purchase price or production cost. Current cost accounting or the revaluation of specific assets to market value, as determined at the date of their last valuation, is also permitted. The treatment of investment properties under the Companies Act 1985 does not give a true and fair view as these assets are not held for consumption in the business but as investments, the disposal of which would not materially affect any manufacturing or trading activities of the enterprise. In such a case it is the current value of these investments, and changes in that current value, which are of prime importance. Consequently, for the proper appreciation of the financial position, the accounting treatment required by SSAP 19 is considered appropriate for investment properties. Details of the current value and historical cost information for investment properties are set out in note 26 (3).Depreciation or amortisation is only one of the many factors reflected in the annual revaluation and the amount that might otherwise have been shown cannot be separately identified or quantified. The financial statements have been prepared on a going concern basis. Further details of which are contained in the Directors' report. Revenue Revenue comprises rental income, listed investment sales, dividends and other income. The profit or loss on disposal of properties is recognised on completion of sale. Dividends receivable Dividends are credited to the profit and loss account when the dividend is received. Tangible fixed assets a) Investment properties An external professional valuation of investment properties is carried out every year. Properties professionally valued by Chartered Surveyors are on an existing use open market value basis, in accordance with the Practice Statements contained within the RICS valuation standards 2008 prepared by the Royal Institution of Chartered Surveyors. The cost of improvements includes attributable interest. b) Other tangible fixed assets Other tangible fixed assets are stated at historical cost. Depreciation is provided on all other tangible fixed assets at rates calculated to write each asset down to its estimated residual value evenly over its expected useful life. The rates generally used are - office equipment - 10 to 33 per cent per annum, and motor cars - 20 per cent per annum, on a straight line basis. Investments Long term investments are described as participating interests and are classified as fixed assets. Short term investments are classified as current assets. a) Investments held as fixed assets: These comprise investments in subsidiaries and investments in Analytical Properties Holdings Limited and Dragon Retail Properties Limited (unlisted joint ventures), Bisichi Mining PLC (listed associate), and in unlisted companies which are all held for the long term. Provision is made for any impairment in the value of fixed asset investments. Analytical Properties Holdings Limited's remaining 50 per cent issued share capital was acquired on 25 September 2007, and is since treated as a wholly owned subsidiary. b) Investments held as current assets: Investments held for trading are included in current assets and are revalued to fair value. For listed investments, fair value is the bid market listed value at the balance sheet date. Realised and unrealised gains or losses arising from changes in fair value are included in the income statement of the period in which they arise. Financial Instruments Bank loans and overdrafts Bank loans and overdrafts are included in creditors on the company balance sheet at the amounts drawn on the particular facilities. Interest payable on those facilities is expensed as a finance cost in the period to which it relates. Interest rate derivatives The company uses derivative financial instruments to hedge the interest rate risk associated with the financing of the company's business. No trading in such financial instruments is undertaken. At each reporting date, these interest rate derivatives are recognised at their fair value to the business, being the Net Present Values of the difference between the hedged rate of interest and the rate of interest for the remaining period of the hedge. Where a derivative is designated as a hedge of the variability of a highly probable forecast transaction i.e. an interest payment, the element of the gain or loss on the derivative that is an effective hedge is recognised directly in equity. When the forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognised directly in equity are reclassified into the income statement in the same period or periods during which the asset acquired or liability assumed affects the income statement i.e. when interest income or expense is recognised. The gain or loss arising from any adjustment to the fair value to the business is recognised in the income statement. Debtors Debtors do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated recoverable amounts. Creditors Creditors are not interest bearing and are stated at their nominal value. Joint ventures Investments in joint ventures, being those entities over whose activities the group has joint control as established by contractual agreement, are included at cost. Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the company's taxable profits and its results as stated in the financial statements. Deferred tax is measured at the average tax rates which are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Leased assets and obligations All leases are "Operating Leases" and the annual rentals are charged to the profit and loss account on a straight line basis over the lease term. Rent free periods or other incentives received for entering into a lease are accounted for over the period of the lease so as to spread the benefit received over the lease term. Retirement benefits For defined contribution schemes the amount charged to the profit and loss account in respect of pension costs and other post retirement benefits is the contributions payable for the year. Differences between contributions payable in the year and contributions actually paid are shown as either prepayments or accruals at the balance sheet date. 26.2. (Loss)/profit for the financial year The company's loss for the year was Â£11,212,000 (profit 2007: Â£1,334,000). In accordance with the exemption conferred by Section 230 of the Companies Act 1985, the company has not presented its own profit and loss account. 26.3. Tangible assets Investment Properties Total Freehold Long Office leasehold Equipment and motor vehicles Â£'000 Â£'000 Â£'000 Â£'000 Cost or valuation at 1 103,890 73,341 28,950 1,599 January 2008 Additions 16,772 14,154 2,324 294 Disposals (996) (827) - (169) Decrease on revaluation (20,750) (16,136) (4,614) - Cost or valuation at 31 98,916 70,532 26,660 1,724 December 2008 Representing assets stated at: Valuation 97,192 70,532 26,660 - Cost 1,724 - - 1,724 98,916 70,532 26,660 1,724 Depreciation at 1 January 739 - - 739 2008 Charge for the year 188 - - 188 Disposals (112) - - (112) Depreciation at 31 December 815 - - 815 2008 Net book value at 1 January 103,151 73,341 28,950 860 2008 Net book value at 31 98,101 70,532 26,660 909 December 2008 The freehold and long leasehold properties were valued as at 31 December 2008 by external professional firms of chartered surveyors. The valuations were made at open market value on the basis of existing use. The decrease in book value was transferred to revaluation reserve. 2008 2007 Â£'000 Â£'000 Allsop LLP, Chartered Surveyors 93,515 97,420 Atisreal Limited, Chartered Surveyors 3,677 4,839 Directors' valuation - 32 97,192 102,291 The historical cost of investment properties, including total capitalised interest of Â£1,222,000 (2007: Â£1,060,000) was as follows: Freehold Long Leasehold Â£'000 Â£'000 Cost at 1 January 2008 54,530 15,756 Additions 14,154 2,324 Disposals (158) - Cost at 31 December 2008 68,526 18,080 Long leasehold properties are held on leases with an unexpired term of more than fifty years at the balance sheet date. 26.4. Other investments Shares in Loan stock Shares Loan Shares in Unlisted Total in in stock subsidiary subsidiary in joint associate shares joint companies companies ventures ventures Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2008 44,848 40,663 3,658 164 - 358 5 Additions 2,300 - - 500 1,800 - - Impairment (390) - - (390) - - - At 31 December 46,758 40,663 3,658 274 1,800 358 5 2008 Subsidiary companies The company owns 100 per cent of the ordinary share capital of the following companies, all of which are registered in England and Wales: Activity % Held by % Held by company group Analytical Investments Dormant 100 100 Limited London & African Investments Dormant 100 100 London & Associated Dormant 100 100 Securities Limited London & Associated Limited Dormant 100 100 LAP Ocean Holdings Limited Property investment 100 100 APL Ocean Limited Property investment - 100 LAP Ocean Limited Property investment - 100 Antiquarius Limited Property investment - 100 LAP Antiques Centres Limited Property letting - 100 Chenil House Limited Property investment - 100 Brixton Village Limited Property investment - 100 Market Row Limited Property investment - 100 Ski Investments Limited Property investment - 100 LAP Estates Limited Property investment - 100 Analytical Properties Property investment 100 100 Holdings Limited Analytical Properties Limited Property investment - 100 Analytical Properties (St Property investment - 100 Helens) Analytical Portfolios Limited Dormant - 100 In the opinion of the directors the value of the investment in subsidiaries is not less than the amount shown in these financial statements. Details of the associate and joint ventures are set out in notes 11 and 12. 26.5. Debtors 2008 2007 Â£'000 Â£'000 Trade debtors 760 578 Amounts due from subsidiary companies 35,640 34,086 Amounts due from associate and joint ventures 148 191 Deferred tax asset 1,350 - Interest rate swap - cash flow hedges - 956 Other debtors 92 40 Prepayments and accrued income 980 704 38,970 36,555 26.6. Investments 2008 2007 Â£'000 Â£'000 Market value of the listed investment 2,330 5,113 portfolio Unrealised (deficit)/excess of market value (490) 1,812 over cost Listed investment portfolio at cost 2,820 3,301 All investments are listed on the London Stock Exchange. 26.7. Creditors: Amounts falling due within one year 2008 2007 Â£'000 Â£'000 Bank overdrafts (unsecured) 7,277 6,250 Amounts owed to subsidiary companies 22,817 7,582 Amounts owed to joint ventures 1,454 1,438 Corporation tax 1,824 1,586 Other taxation and social security costs 282 324 Other creditors 756 466 Accruals and deferred income 4,977 4,512 39,387 22,158 26.8. Creditors: Amounts falling due after more than one year 2008 2007 Â£'000 Â£'000 Interest rate derivatives 9,926 - Term Debenture stocks: Â£5 million First Mortgage Debenture Stock 2013 5,000 5,000 at 11.3 per cent Â£1.7 million First Mortgage Debenture Stock 1,700 1,700 2016 at 8.67 per cent Â£5 million First Mortgage Debenture Stock 2018 5,000 5,000 at 11.6 per cent Â£10 million First Mortgage Debenture Stock 9,770 9,753 2022 at 8.109 per cent* 21,470 21,453 Term bank loans: Repayable after more than two years* 69,184 71,694 100,580 93,147 *The Â£10 million debenture and bank loans are shown after deduction of un-amortised issue costs. Details of terms and security of overdrafts, loans and debentures are set out in note 17. Repayment of borrowings: Bank loans and overdrafts: Repayable within one year 7,277 6,250 Repayable between two and three years 69,184 - Repayable between three and five years - 71,694 76,461 77,944 Debentures: Repayable between three and five years 5,000 - Repayable in more than five years 16,470 21,453 97,931 99,397 Hedge profile There is a hedge to cover part of the Â£90 million revolving credit facility, which currently covers the full Â£69 million drawn. It consists of a 20 year swap for Â£35 million with a 7 year call option in favour of the bank, taken out in November 2007, at 4.76 per cent and a 20 year swap for Â£40 million with a 7 year call option in favour of the bank, taken out in December 2007, at 4.685 per cent. At the year end the amount recognised was Â£7,147,000 deficit (2007: Â£688,000 surplus) being the estimated financial effect of the fair value to the business of these hedging instruments less the deferred tax thereon. The Directors have estimated the financial effect of the fair value to the business of these hedging instruments. This has been calculated as the Net Present Value of the difference between the 19 year interest rate , which was 3.73 per cent at 31 December 2008 against the rate payable under the specific hedge. This has given a liability at 31 December 2008 of Â£9,926,000 as shown in the balance sheet. The banks own initial quotations at 31 December 2008 to close each of the hedges were Â£14,182,000. Since the end of the year the long term 19 year interest rate has increased and at 7 April 2009 it was 4.12 per cent. This rate would give a fair value of Â£ 5,798,000, a decrease in the liability of Â£4,128,000. The banks quote to close the hedges at the same date would have been Â£11.1 million, a decrease of Â£3.1 million. It is not the company's intention to crystallise the derivatives. The hedges arenot deemed to be eligible for hedge accounting, as the banks have an option to cancel the hedge in January 2015, even though this is after the expiry of the term loans and the level of the hedges closely equate to the amount of the loans outstanding. Any movement in the value of the hedges has therefore to be charged directly to the Income Statement. Liquidity The table below analyses the company's financial liabilities into maturity groupings and also provides details of the liabilities that bear interest at fixed, floating and non-interest bearing rates. Less than Over 2008 1 year 2-5 years 5 years Total Â£'000 Â£'000 Â£'000 Â£'000 Bank overdrafts (floating) 7,277 - - 7,277 Debentures (fixed) - 5,000 16,700 21,700 Bank loans (floating)* - 69,429 - 69,429 Trade and other payables (non-interest) 32,110 - - 32,110 39,387 74,429 16,700 130,516 Less than Over 2007 1 year 2-5 years 5 years Total Â£'000 Â£'000 Â£'000 Â£'000 Bank overdrafts (floating) 6,250 - - 6,250 Debentures (fixed) - - 21,700 21,700 Bank loans (floating)* - 72,000 - 72,000 Trade and other payables (non-interest) 15,908 - - 15,908 22,158 72,000 21,700 115,858 The company would normally expect that sufficient cash is generated in the operating cycle to meet the contractual cash flows as disclosed above through effective cash management. *The bank loans are fully hedged interest derivatives. Details of the hedges are shown above. Total financial assets and liabilities The companyâ€™s financial assets and liabilities and their fair values are as follows: 2008 2007 Fair Carrying Fair Carrying Value value value value Â£'000 Â£'000 Â£'000 Â£'000 Cash and cash equivalents 5,849 5,849 12,334 12,334 Investments 2,330 2,330 5,113 5,113 Derivative assets - - 956 956 Other assets 38,970 38,970 35,599 35,599 Bank overdrafts (7,277) (7,277) (6,250) (6,250) Bank loans (69,429) (69,184) (72,000) (71,694) Derivative liabilities (9,926) (9,926) - - Other liabilities (32,110) (32,110) (15,908) (15,908) Before debentures (71,593) (71,348) (40,156) (39,850) Additional details of borrowings and financial instruments are set out in notes 17 and 18. 26.9. Provisions for liabilities and charges 2008 2007 Â£'000 Â£â€™000 Deferred Taxation Balance at 1 January 1,337 2,053 Transfer to profit and loss account (2,687) (716) Balance at 31 December (1,350) 1,337 No provision has been made for the approximate taxation liability at 28 per cent (2007: 28 per cent) of Â£649,000 (2007: Â£4,484,000) which would arise if the investment properties were sold at the stated valuation. The deferred tax balance comprises the following: Accelerated capital allowances 1,184 1,059 Fair value of interest derivatives (2,779) 268 Short-term timing differences 245 10 Provision at end of period (1,350) 1,337 26.10. Share capital Details of share capital, treasury shares and share options are set out in note 20. 26.11. Reserves Share Capital Revaluation Fair Retained Premium redemption reserve value Account reserve Earnings reserve Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 January 5,236 47 31,968 688 45,737 2008 Decrease on valuation - - (20,750) - - of investment properties Retained loss for year - - - - (11,212) Dividends paid in year - - - - (1,485) Loss on disposal of - - - - (183) Treasury Shares Reclassification of fair - - - (688) 688 value of interest derivatives (net of deferred tax) Transfer of realised - - (669) - 669 revaluation profit Balance at 31 December 5,236 47 10,549 - 34,214 2008 26.12. Related party transactions Details of related party transactions are given in note 21. As provided under Financial Reporting Standard 8: Related Party Disclosures, the company has taken advantage of the exemption from disclosing transactions with other group companies. 26.13. Capital commitments 2008 2007 Â£'000 Â£'000 Commitments to capital expenditure contracted for at the - 4,693 year end 26.14. Commitments under operating leases At 31 December 2008 the company had annual commitments under non-cancellable operating leases on land and buildings as follows: 2008 2007 Â£'000 Â£'000 Expiring in more than five years 392 334 In addition, the company has an annual commitment to pay ground rents on its leasehold investment properties which amount to Â£326,000 (2007: Â£294,000), the leases on which expire in more than fifty years. 26.15. Contingent liabilities There were no contingent liabilities at 31 December 2008 (2007: Â£Nil). Five year financial summary IFRS IFRS IFRS IFRS IFRS Restated 2008 2007 2006 2005 2004 Â£m Â£m Â£m Â£m Â£m Portfolio size Investment properties-group^ 219 248 193 117 108 Investment properties-joint 3 3 91 140 127 ventures Investment 12 15 17 15 15 properties-associate 234 266 301 272 250 Portfolio activity Â£m Â£m Â£m Â£m Â£m Acquisitions 9.18 112.71 50.70 2.72 8.38 Disposals at book value (15.33) (41.37) (1.62) (6.70) (5.05) Capital Expenditure 9.73 9.15 5.13 3.34 2.16 3.58 80.49 54.21 (0.64) 5.49 Consolidated income statement Â£m Â£m Â£m Â£m Â£m Rental income - Group and 16.77 14.26 11.84 12.39 12.96 share of joint ventures Less: attributable to joint (0.27) (1.23) (3.95) (4.52) (5.20) venture partners Group rental income 16.50 13.03 7.89 7.87 7.76 (Loss)/profit before interest (24.91) (16.59) 21.76 21.48 21.98 and tax (Loss)/profit before tax (57.27) (23.89) 18.32 17.89 18.62 Taxation (9.81) (11.38) 3.11 3.04 2.00 (Loss)/profit attributable to (47.45) (12.50) 15.22 14.85 16.62 shareholders (Loss)/earnings per share - (62.30p) (16.40p) 20.00p 18.83p 20.34p basic (Loss)/earnings per share - (62.30p) (16.40p) 19.97p 18.79p 20.23p fully diluted Dividend per share 1.95p* 1.95p 1.85p 1.725p 1.65p Consolidated balance sheet Â£m Â£m Â£m Â£m Â£m Shareholders funds 40.30 88.99 101.86 88.34 80.60 Net borrowings 157.17 147.54 86.12 44.14 34.33 Net gearing 390.01% 165.79% 84.55% 49.97% 42.59% Net assets per share - basic 52.73p 116.86p 133.62p 116.04p 98.82p - fully diluted 52.70p 116.73p 133.47p 115.88p 98.14p Consolidated cash flow Â£m Â£m Â£m Â£m Â£m statement Net cash inflow from 12.02 3.97 3.44 3.88 2.60 operating activities Capital investment and (6.09) 9.84 (26.86) 0.69 (5.36) financial investment Notes: ^Excluding the present value of head leases *Equivalent dividend includes new issue shares equal to 0.8p

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